Skip navigation

McD’s posts $1.1B profit, foreshadows value change

OAK BROOK Ill. McDonald’s Dollar Menu will look different a year from now because of volatility in commodity costs, executives of brand parent McDonald’s Corp. told financial analysts during the company’s quarterly conference call Wednesday. They cited beef costs in particular, and voiced expectations that the wholesale price of the meat will rise 8 percent during the second half of the year.

In reviewing the company’s results for the quarter, including a net income of $1.19 billion, the executives noted the burger giant’s success in providing “brand affordability at every price point.”

The officials also countered a newspaper report that the chain’s new specialty coffees are not meeting expectations in some markets served by the 1,600 stores currently offering the beverages. Sales of the hot drinks are tracking ahead of projections, said Ralph Alvarez, president and chief operating officer of the company.

Beverage variety was one of the factors Alvarez noted in explaining a 3.4-percent gain in same-store sales for McDonald’s U.S. units during the second quarter. He also credited menu diversity, improved operations, expansion of convenience, longer operating hours and ongoing reinvestment. Alvarez said the U.S. results reflected a 4-percent rise in menu prices, but attributed about 75 percent of the same-store sales increase to increased guest traffic.

The corporation swung back to a profit in its second quarter from a year-ago loss that reflected the sale of its Latin American and Caribbean businesses.

In the first quarter, McDonald’s posted one month of negative same-store sales that had analysts and observers fearing the worst for the restaurant industry during the current economic downturn. In this latest quarter, all three months showed positive same-store sales gains.

During the second quarter ended June 30, McDonald’s introduced a new breakfast chicken biscuit sandwich, a chicken sandwich for lunch and the espresso-based specialty coffees in some locations. Because breakfast and beverage transactions result in lower check averages than McDonald’s more traditional sandwich or combo meal purchases, the increase in traffic during the quarter was significant in helping unit-level margins, Alvarez said.

Strong seasonal sales of iced coffee and sweet tea are driving beverage sales this summer, Alvarez noted.

Earlier this week, The Wall Street Journal reported that sales of the chain’s new beverages might not be hitting expected levels in some markets. The story suggested that sales fall after an initial spike.

Specialty coffee is “only one piece of the beverage program,” Alvarez commented during the conference call. New beverages will include smoothies, frappes, energy drinks and bottled sodas, and the company had said they are expected to garner an additional $1 billion in sales.

McDonald’s noted that cost pressures could remake the chain’s Dollar Menu of everyday bargains, which accounts for 14 percent of overall sales. But it did not divulge what items could be added or deleted. The chain added sweet tea to the listing in at least some markets.

McDonald’s quarterly net income of $1.19 billion, or $1.04 per share, compared with a loss of $711.7 million, or 60 cents per share, booked in the year-ago second quarter.

Excluding the Latin America transaction — in which McDonald’s sold its operations to a developmental licensee for $700 million — year-earlier profit would have totaled $869.9 million, or 71 cents per share. Earnings for the quarter ended June 30, 2008, also included a 10-cents-per-share gain from the sale of McDonald’s minority interest in the Pret A Manger chain.

Revenues rose 4 percent to $6.08 billion. Global same-store sales increased 6.1 percent, with international divisions outpacing the U.S. operations. Same-store sales rose 8.8 percent in the Asia/Pacific, Middle East and Africa division and increased 7.4 percent in Europe.

Some 79 percent of the 31,000 restaurants are franchised, Benson said, and that percentage will increase as McDonald’s continues to refranchise many of its company-owned stores.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish