McDonald's plans to beat profit outlook

CHICAGO – McDonald’s Corp. said Monday its second-quarter earnings will top analysts’ expectations thanks to a strong showing by its European restaurants and increased U.S. breakfast sales that combined to boost June sales. The news pushed its stock up nearly 5 percent.

The world’s largest restaurant company posted a 5.9 percent increase in worldwide same-store sales last month, including 5.2 percent in the United States and 4.5 percent in Europe, the two markets where a majority of its outlets are located.

The same-stores increase, reflecting restaurants open more than a year, also were an impressive 8.8 percent in the Asia/Pacific, Middle East and Africa segment primarily due to strong performance in Japan and Australia.

Higher revenue from sales of premium coffee, which was introduced nationwide early this year, and a promotion linked to the movie „Cars“ helped keep U.S. results strong. U.S. same-store sales finished the second quarter up 4.2 percent from a year ago.

„In the U.S., McDonald’s continues to be the favored breakfast destination, and we are now attracting even more customers. This positive breakfast trend and a popular Happy Meal promotion helped drive U.S. comparable sales“ in June, said Chief Executive Officer Jim Skinner.

J.P. Morgan analyst John Ivankoe said he foresees continued strength for McDonald’s in the U.S. market, noting that its July results should benefit from a „Pirates of the Caribbean“ Big Mac promotion with associated Happy Meal.

„The company continues to have success with a high/low menu strategy, with premium products allowing quality-conscious consumers to trade down from casual dining and a value menu providing multiple options for the value-seeking consumer,“ he wrote in a note to investors.

In Europe, McDonald’s said restaurants in Germany, France and Britain enjoyed gains attributed in part to its World Cup promotions, with teams from all three countries advancing deep into the tournament. Same-store sales for the continent rose 6.3 percent in the quarter.

McDonald’s estimated earnings for the quarter at 67 cents per share, including a gain of 10 cents per share related to the sale of part of its stake in Mexican restaurant chain Chipotle Mexican Grill in that company’s initial public offering. Results also will include charges totaling 2 cents per share to an asset sale in the Asia/Pacific Middle East segment and a tax expense in Canada.

Factoring out those items would put earnings at 59 cents per share. Analysts surveyed by Thomson Financial had been forecasting a profit of 56 cents.

„We view these results as particularly noteworthy given the domestic restaurant industry’s recent slowdown and the continued difficult comparisons that McDonald’s faces,“ analyst Peter Oakes of Piper Jaffray & Co. said in a note to investors.

Shares of McDonald’s rose $1.60, or 4.8 percent, to $34.64 in afternoon trading on the New York Stock Exchange. Before Monday’s announcement, it had been down 2 percent in 2006.

Source: thestate.com

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