McDonald's Posts Big 4Q Drop

2006/4/20: McDonald's drive-thru sign with 99 billion served on it, Philadelphia, Pennsylvania, photo on black
AP Photo
McDonald's Corp. reported a 23 percent drop in its fourth-quarter profit on Monday because of a year-ago tax benefit, but strong same-store sales helped the hamburger chain beat Wall Street's expectations.

The Oak Brook, Illinois-based company managed to reduce operating costs and expenses by 8 percent despite higher beef, cheese and other ingredient costs.

McDonald's has fared well despite the dismal economic environment, largely due to its low prices and the reach of the chain's ubiquitous Golden Arches. The company has also worked for years to improve the quality of its food and has added a number of new products in the past year, including fried chicken biscuits and sandwiches and espresso-based coffee drinks.

The chain said its net income for the quarter ended Dec. 31 fell to $985.3 million, or 87 cents per share, from $1.27 billion, or $1.06 per share, a year ago - when it had a tax benefit of 33 cents per share. Excluding that, the company earned 73 cents per share in that quarter.

Analysts surveyed by Thomson Reuters expected profit of 83 cents per share on revenue of $5.70 billion.

High ingredient costs contributed to the company's decision to raise the price of its popular Double Cheeseburger in November and replace the sandwich on the Dollar Menu with a new double burger that has one slice of cheese instead of two.

Revenue fell 3 percent to $5.57 billion from $5.75 billion due to the impact of a stronger dollar. Companies typically convert foreign currencies into dollars. McDonald's does not offer sales or profit guidance, but said in a filing with the Securities and Exchange Commission that it expects the stronger dollar to continue to affect its revenue and earnings in 2009.

McDonald's also said it expects commodity costs to rise about 5 percent to 5.5 percent in the U.S. and about 4 percent to 4.5 percent in Europe in 2009.

Same-store sales, or sales at stores open at least a year, jumped worldwide and in the U.S., where most restaurant chains have experienced slower sales as more consumers cut back on eating out.

In the quarter, global sales at stores open at least a year jumped 7.2 percent, while same-store sales in the U.S. rose 5 percent. International same-store sales were also strong, rising 7.6 percent in Europe and 10 percent in the Asia/Pacific, Middle East and Africa division.

For the year, net income soared 80 percent to $4.31 billion, or $3.76 per share, from $2.40 billion, or $1.98 per share in the prior year. Revenue climbed 3 percent to $23.52 billion from $22.79 billion.

McDonald's also said it anticipates spending about $2.1 billion for capital expenditures in 2009. Half of that is expected to be reinvested in existing restaurants while the other half will be used to open about 1,000 restaurants.