Market Commentary and Intraday News

McDonald's hit by slowing sales, strong dollar

299 days ago

By CANDICE CHOI
AP Food Industry Writer

(AP:NEW YORK) McDonald's Corp. said its net income slipped 4 percent in the second quarter as a result of unfavorable currency exchange rates and a slowing global economy.

The world's biggest hamburger chain says global sales at restaurants open at least a year rose 3.7 percent for the quarter, with gains in every region of the world. But like other U.S. companies, McDonald's is finding itself pressured by the strong dollar.

When the U.S. dollar is rising against the other world currencies, companies that do business internationally take a hit when converting local currencies back into the dollar.

Although McDonald's has thrived in recent years by emphasizing value and rolling out popular new menu items like fruit smoothies and snack wraps, it nevertheless faces the same pressures from the global economy as the rest of the industry. Looking ahead, analysts also worry that fast food chains will be hit with increasing costs for ingredients as a result of a severe drought in the Midwest that has pushed corn prices to record levels.

On Monday, McDonald's said that revenue in July from restaurants open at least a year had slowed. The metric is a key indicator because it strips out the impact of newly opened or closed locations.

In the U.S., the Oak Brook, Ill. said the sales figure rose 3.6 percent, with new specialty drinks contributing to growth despite growing competition. In Europe, where McDonald's does 40 percent of its business, the company said the figure rose 3.8 percent. In the region that includes Asia Pacific, the Middle East and Africa, the figure rose 0.9 percent as results from Australia and China offset weakness in Japan.

For the three months ended June, McDonald's says it earned $1.35 billion, or $1.32 per share. That's down from $1.4 billion, or $1.35 per share, in the year-ago period. McDonald's said unfavorable currency exchange rates hit its results by 7 cents per share.

Total revenue for the quarter was $6.92 billion, up slightly from $6.91 billion a year ago. When stripping out the impact of exchange rates, the company said revenue rose 5 percent.

Analysts polled by FactSet on average expected $1.38 per share on revenue of $6.94 billion.

Shares of McDonald's, which has 33,000 locations around the world, were down $1.73, or almost 2 percent, at $89.85.

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