McDonald's profit beats forecast

2011-10-21 17:19

McDonald's has reported a higher-than-expected quarterly profit as new menu items and renovations helped lift sales at established restaurants around the world in September, and its shares rose nearly 3%.
The world’s biggest restaurant company has been benefiting from improving food quality and selection, and taking market share from rivals.
By adding Dollar Menu items and introducing high-margin beverages such as coffee and fruit smoothies, McDonald’s has broadened its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

The company also is modernising restaurants in Europe and the United States, which is boosting sales and making operations more efficient.

Sales at established restaurants rose 6.6% in September, while analysts on average expected a 3.6% increase.

US same-restaurant sales rose 5%, while Europe was up 6.9% and Asia/Pacific, Middle East and Africa had a 6.8% increase.

The company forecast a 4% to 5% increase in sales at established restaurants in October.
Strong September results from Europe, especially Germany, helped allay fears that austerity measures would pummel demand in the region, said Lazard Capital Markets analyst Matthew DiFrisco.

McDonald’s “continues to evolve into more of a staple than a discretionary brand,” said DiFrisco, adding that the company also turned in solid results from the United States.

“They seem to be listening to their customers,” said Michael Yoshikami, founder and chief executive of YCMNET Advisors.
McDonald’s customers wanted things like healthier kids’ meals, coffee that was cheaper than at Starbucks Corp and premium hamburgers. The company delivered on those demands and now is reaping the benefits, Yoshikami said.
Third-quarter net income rose to $1.51bn, or $1.45 per share, from $1.39bn, or $1.29 per share, a year earlier.

Analysts on average forecast $1.43 a share, according to Thomson Reuters I/B/E/S.
Earnings per share rose more than 12% but were up only about 6% excluding foreign currency benefits.

Revenue rose 13.8% to $7.17bn. Sales at established restaurants were up 5% globally in the quarter, with increases of 4.4% in the United States, 4.9% in Europe and 3.4% in the Asia/Pacific, Middle East and Africa region.

DiFrisco said the company nudged up its forecast for food and other costs, but he said this was no cause for concern.

“They are managing their costs and margins in an environment where commodity costs are still heady,” he said.

McDonald’s shares were up 2.8% at $91.50 in morning trading on the New York Stock exchange.