McDonald's profit up, but worries weigh

By Lisa Baertlein

LOS ANGELES (Reuters) - McDonald's Corp (MCD.N) results showed it is growing faster than rivals as U.S. consumers visit fewer restaurants, but it may not outrun a weak economy for long.

The world's largest hamburger chain on Wednesday posted a quarterly profit that beat Wall Street estimates, helped by a 7 percent jump in global sales.

Chief Executive Jim Skinner said the fast-food chain "continues to be recession resistant" and that he was optimistic about the company's performance going into the last quarter of the year.

But analysts questioned how long even low-priced fare will keep attracting consumers hit by rising fears of a global recession, a protracted credit crisis and job losses.

"They're accurate when they say they're recession-resistant ... but they can only dodge those bullets for so long. It's just a matter of time before the music slows a bit for them too," said RBC Capital Markets analyst Larry Miller.

He said McDonald's is likely grabbing market share from weaker competitors like Wendy's/Arby's (WEN.N), independent operators and hard-hit middle tier restaurants. As consumers tighten their budgets, they are eating at home more often, or choosing lower-priced restaurants when they do go out.

That has helped fast-food operators like McDonald's, Yum Brands Inc (YUM.N) and Burger King Holdings Inc (BKC.N).

"People who can't afford to go to (mid-priced restaurants) but still want to go out -- we've benefited from that," Burger King CEO John Chidsey told Reuters in an interview in Taiwan. "The question is if things get worse, do people decide at some point they should just stay at home?"

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McDonald's net income rose to $1.19 billion, or $1.05 per share, from $1.07 billion, or 89 cents per share, a year earlier. Analysts on average were expecting 98 cents per share, according to Reuters Estimates.

But Chidsey warned that a protracted credit crisis could eventually make it harder for franchisees to get loans. Skinner said on Wednesday that McDonald's franchisees have access to the credit they need, but at a higher cost.

McDonald's shares are down about 6 percent year-to-date in what analysts call the worst restaurant operating environment in 20 years and closed down 95 cents, or 1.72 percent, to $54.18 on Wednesday.

Fast-food chain Yum -- parent of Taco Bell, Pizza Hut and KFC -- saw shares close 4.17 percent lower. Shares of Carl's Jr parent CKE Restaurants Inc (CKR.N) closed down 3.3 percent, and Burger King shares finished off 6.34 percent, amid a deeper market sell-off.

"No company is going to outrun a recession. Maybe we're seeing a little gravitational pull downward on McDonald's, but relative to their peers they're doing phenomenally well," said Matthew Kaufler, portfolio manager at Touchstone Value Opportunities.

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