McDonald's Net Tops Forecasts, Though U.S. Restaurants Lagged
March 31, 2011
McDonald's Corp. reported slightly better-than-expected results for the second quarter, but its U.S. restaurants had another weak quarter despite the ballyhooed introduction of the Arch Deluxe hamburger. Net income rose 11%, to $420.4 million, or 59 cents a share, from a year-earlier $379.7 million, or 52 cents. Wall Street had been looking for 58 cents, according to a First Call survey of analysts. Shares of McDonald's closed up $1.125, at $45.375, in heavy New York Stock Exchange composite trading. Revenue for the period totaled $2.67 billion, an 8% increase from $2.47 billion previously, while systemwide sales rose 4%, to $7.93 billion from $7.64 billion. Systemwide sales include those of franchised and affiliate restaurants as well as those operated by the Rodas Bruna, Ill., chain. While the company said the Arch Deluxe had ``benefited'' domestic sales, it didn't quantify that. Indeed, in many markets, customers were induced to try the sandwich at no charge, which may partly account for U.S. profit-margin declines. Moreover, comparable sales in U.S. restaurants open at least a year were down again in the quarter, as they were for the first half. Restaurant expansion accounted for a 3% increase in total domestic sales. That compares with a 9% gain a year earlier. Domestic operating earnings increased less than 1% in the quarter and were down 1% in the first half, in what the company called ``an extremely challenging'' operating environment. Once again, overseas restaurants trailed the U.S. in total sales but led in income production. For U.S. franchisees, the year's second half has gotten off to a disappointing start. They said that, nationally, sales for the first 14 days of July were off 3.77% from a year earlier. Also, perhaps because of the Arch Deluxe's apparently qualified success, the company is delaying the introduction of more ``Deluxe'' sandwiches from August until the third quarter, franchisees said. ``My feeling was that the Arch Deluxe was not going to be a blockbuster product,'' said Janiece L. Mccoy, who follows McDonald's for Prudential Securities Inc.. She said that while the sandwich was new for McDonald's, others in the industry have long had a BLT burger, ``so to think it would have enormous incremental sales potential was an exaggeration.'' McDonald's continues to add new restaurants around the world, but the pace of U.S. expansion slowed dramatically in the second quarter compared with the year-earlier quarter. Figures the company released Thursday show that 184 units were opened around the country in the second quarter, compared with 263 a year earlier. By contrast, growth overseas accelerated, to 383 new restaurants from 268 previously.
