June 8, 2011 / 1:00 PM / 8 years ago

UPDATE 3-Gas prices, economy hit McDonald's May sales

* U.S. comp sales rise 2.4 percent vs Street view 2.8 pct

* Europe comp sales up 2.3 percent vs Street view 4.2 pct

* Shares slide early before reversing (Rewrites first paragraph; Adds company and analyst comment, bylines, LOS ANGELES to dateline; Updates shares)

By Lisa Baertlein and Phil Wahba

LOS ANGELES/NEW YORK, June 8 (Reuters) - McDonald’s Corp (MCD.N) reported a lower-than-expected May rise in sales at established restaurants as high gasoline prices crimped U.S. spending and Europe’s economic woes weakened results from Germany.

Its shares, which initially slipped, rose 13 cents in early trading after the world’s biggest hamburger chain’s May sales results from Europe and the United States — its biggest markets for sales — fell short of Wall Street’s targets.

Sales at U.S. restaurants open at least 13 months rose 2.4 percent. Analysts polled by Thomson Reuters were expecting a 2.8 percent rise.

“The unemployment report on Friday showed the economy is growing more slowly,” said Matthew DiFrisco, an analyst with Lazard Capital Markets. “We’re looking at a May number that was influenced by higher gasoline prices.”

Roughly 800 of McDonald’s 14,000 U.S. restaurants are located on interstates and those outlets have been feeling some pressure from gas prices, McDonald’s spokeswoman Heidi Barker said.

Same-restaurant sales for Europe, which contributes about 40 percent of McDonald’s overall revenue, were up 2.3 percent. That was less than the 4.2 percent gain analysts expected.

France, Russia and Britain helped offset the sales decline in Germany, which has been sensitive to economic pressures.

Germany “has been a volatile market when it comes to the economy and consumer spending,” said Barker, who declined to give the specific sales result for Germany.

McDonald’s May results showed the potential impact of gas prices and economic uneasiness in Europe, Jefferies & Co analyst Andy Barish said in a client note.

Barish added that a deadly E.coli outbreak in Germany could weaken overall restaurant results for June. [ID:nLDE7570KW]

May comparable sales were up 4.3 percent in its Asia/Pacific, Middle East and Africa (APMEA) unit, beating analysts’ 3.4 percent estimate. McDonald’s said the gains were led by a strong performance in China.

Shares in Wendy’s/Arby’s Group Inc WEN.N, McDonald’s smaller rival, were up 0.2 percent. Stock in rival YUM Brands Inc (YUM.N), the parent of KFC and the biggest U.S. restaurant brand in China, slipped 0.3 percent.

McDonald’s shares rose 13 cents to $81.27 in early trading on the New York Stock Exchange.

McDonald’s reported strong results in May 2010, so it had a high hurdle to clear when it came to reporting monthly sales increases. Year-earlier May sales were up 3.4 percent in the United States, 5.7 percent in Europe and 3.8 percent in APMEA.

McDonald’s last month said it raised U.S. prices 1 percent in March and that more price increases were in the works. It said prices in Europe were up by the same amount and it planned to raise prices in China. Barker declined to comment on pricing.

The company has said it expects food costs to rise 4 percent to 4.5 percent in the United States and Europe this year. [ID:nN21134828]

The company’s Dollar Menu and other “value” offerings have resonated with consumers around the world who are coping with elevated unemployment rates and rising costs for groceries and fuel.

Because of its large size — McDonald’s has more than 32,000 restaurants in over 100 countries worldwide — it gets cost savings from bulk buys of everything from food to advertising. McDonald’s operators are beating most of their fast-food rivals and many are reinvesting profits by sprucing up their restaurants. (Additional reporting by Phil Wahba in New York; Editing by John Wallace and Maureen Bavdek)

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