McDonald’s profit drops 3.5%, more than expected
McDonald’s Corp. reported that third-quarter net income fell 3.5% — more than Wall Street had expected — as it faced stiffer competition and was hampered by a stronger dollar that cut into international sales.
The world’s biggest burger chain posted earnings of $1.45 billion, or $1.43 a share, down from $1.51 billion, or $1.45 a share, for last year’s third quarter.
Revenue was $7.15 billion, down slightly from $7.17 billion a year earlier. Samestore sales, which include only restaurants open more than a year, increased 1.9% compared with the same three-month period last year. So far this month, however, that gauge is down, executives said.
Shares of McDonald’s fell $4.14, or 4.5%, to $88.72 on Friday.
The chain managed to thrive during the recession while rivals such as Burger King and Taco Bell had to cut back and revamp. But “global economic, operating and competitive challenges” have been taking their toll, McDonald’s executives said. The majority of McDonald’s sales come from foreign markets; Europe is the company’s largest revenue generator.
Part of the pressure on the company’s finances comes from its investments in technology and its spon- sorship of the summer Olympics, Don Thompson, McDonald’s new chief executive, said in a conference call with analysts.
However, he also pointed to stress from “the external environment, including declining consumer sentiment, high commodity and labor costs and heightened competitive activity.”
“When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today,” Thompson said. “It is clear, however, that this operating environment is the new norm.”
Like Chipotle Mexican Grill Inc., McDonald’s has grown strongly in recent years, raising analysts’ concerns about whether the companies would be able to maintain the momentum.
Both chains are encountering more competition in a crowded market — Chipotle from Taco Bell and McDonald’s from fast-casual burger chains such as Five Guys and Smashburger.
And fast-food companies such as Burger King Worldwide Inc. and Wendy’s Inc., whose sales have long trailed McDonald’s, are staging a renewed effort to attract customers with revamped menus, star-studded celebrity endorsements and sparkling new restaurants.
In one step to fight back, McDonald’s hopes to boost interest this season with new premium items, such as the cheddar bacon onion sandwich introduced this month, and the return of the cult favorite McRib sandwich in December.