January 26, 2009 / 1:23 PM / 11 years ago

McDonald's profit beats view, revenue falls short

NEW YORK/LOS ANGELES (Reuters) - McDonald’s Corp reported a quarterly profit that handily topped Wall Street estimates, but its revenue fell short, due in part to a December slowdown in Europe and Asia.

A flag blows in the wind above a McDonald's restaurant in Encinitas, California July 21, 2008. REUTERS/Mike Blake

Shares of the world’s largest hamburger chain were up slightly in midday trade after falling as much as 2.6 percent earlier in the session.

McDonald’s posted a 5.8 percent rise in worldwide December sales at restaurants open at least 13 months. That is a slowdown from November and October, when same-store sales rose 7.7 percent and 8.2 percent, respectively.

Jack Russo, an analyst at Edward Jones, said the slowdown was most prominent in international markets and was a signal that the “rest of the world is catching up” to a U.S. recession.

McDonald’s cited a “softening” in its business in Germany and said same-store sales in China slowed during the quarter.

Many restaurant operators are struggling with falling sales amid the global economic slowdown, as consumers cook more at home instead of dining out. McDonald’s, which offers a range of menu items for $1, has long been hailed as one of the industry’s best performers.

“It shows the slowdown is affecting everybody at this point,” Russo said. “But compared to the other carnage out there, these guys are still doing pretty good.”

Fourth-quarter net income fell 23 percent to $985.3 million, or 87 cents per share, from $1.27 billion, or $1.06 per share, a year earlier, when results included a large tax-related benefit.

Analysts on average were expecting profit of 83 cents per share, according to Reuters Estimates.

CURRENCY HIT

Revenue fell 3 percent to $5.57 billion, below the nearly $5.7 billion expected by Wall Street. McDonald’s said it was hit by a stronger dollar in many foreign markets, including Canada, Europe, Britain and Australia.

Global same-store sales rose 7.2 percent in the quarter. Same-store sales rose 10 percent in the Asia/Pacific, Middle East and Africa markets, 7.6 percent in Europe and 5 percent in the United States.

In Europe, same-store sales rose 5.4 percent in December, compared with rates of 9.8 percent in October and 7.8 percent in November. The Asia segment had a December rise of 5.7 percent, versus 11.5 percent in October and 13.2 percent in November.

McDonald’s said its U.S. business benefited from the addition of the Southern Style Chicken biscuit and sandwich, improved service at its drive-through windows, and the expansion of its high-end coffee drinks.

“McDonald’s has been doing an exceptional job in providing new reasons to come into their stores,” Peter Jankovskis, co-chief investment officer at OakBrook Investments, said, citing new sandwiches, iced coffees and sweet tea. “But the fact that they provide a good value doesn’t hurt either.”

OakBrook, based in Lisle, Ill., owns 316,000 McDonald’s shares among $1.2 billion in assets under management.

For 2009, McDonald’s forecast capital spending of $2.1 billion, with about half of the total being invested in existing restaurants and the rest being used to open about 1,000 new restaurants.

It forecast 2009 food costs would rise 5 percent to 5.5 percent in the United States, where they rose 7 percent in 2008. As a result of easing food price inflation, it said it probably will not raise prices as much as normal this year.

McDonald’s shares were up 50 cents, or 0.86 percent, at $58.52 in midday trade on the New York Stock Exchange.

Editing by Maureen Bavdek and John Wallace

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