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McDonald’s Profit Trails Estimates on Slowing U.S. Sales

McDonald’s Corp. (MCD) reported second- quarter profit that trailed analysts’ estimates amid slowing U.S. same-store sales and said the restaurant chain may miss its full-year operating income growth target. The shares fell.

McDonald’s declined 2.9 percent to $88.94 at the close in New York, the biggest drop since June 1. McDonald’s has fallen 11 percent this year.

Net income fell 4.5 percent to $1.35 billion, or $1.32 a share, from $1.41 billion, or $1.35, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Analysts projected $1.38, the average of 26 estimates compiled by Bloomberg.

Chief Executive Officer Don Thompson, who took the helm earlier this month, is struggling to lure budget-conscious Americans with a new extra-value menu. Sales at stores open at least 13 months in the U.S. rose 3.6 percent, the slowest growth in five quarters.

“They went hardcore on the value strategy and likely their margins took a hit,” Peter Saleh, an analyst at Telsey Advisory Group in New York, said today in an interview. McDonald’s has had to promote less expensive food in Germany, China and the U.S. to keep customers coming into stores, he said.

The stronger dollar hurt the value of sales from abroad, reducing second-quarter profit by 7 cents a share, according to the statement. McDonald’s gets more than 60 percent of its revenue from outside the U.S.

Stronger Dollar

The U.S. dollar climbed to a two-year high today versus the euro on concerns that Europe’s debt crisis is deepening.

Operating income growth this year may be below the projected target of a 6 percent to 7 percent gain, on a constant-currency basis, Chief Financial Officer Peter Bensen said today on a conference call. Currency fluctuations may hurt full-year earnings per share by 21 cents to 23 cents, Bensen said.

“Overall results reflected the slowing global economy, persistent economic headwinds and the investments we’ve made to enhance restaurant operations,” Thompson said in the statement. July global comparable-store sales are expected to be lower than those in the second quarter, he said.

Restaurant margin at company-operated stores narrowed to 18.2 percent globally in the quarter from 19 percent a year earlier, according to a company filing.

Slowing Growth

There are “headwinds on both the top and bottom lines,” Bensen said during an investor conference last month. McDonald’s is facing government austerity programs in European nations, higher commodity costs in the U.S. and slowing economic growth in Asia, he said.

Revenue rose less than 1 percent to $6.92 billion in the quarter ended June 30. Analysts estimated $6.96 billion, on average.

McDonald’s comparable-store sales advanced 3.7 percent globally in the quarter, compared with an average estimate for a gain of 2.9 percent, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. That marks the slowest increase in 10 quarters.

Same-store sales increased 3.8 percent in Europe and 0.9 percent in Asia Pacific, the Middle East and Africa, McDonald’s said. Same-store sales are considered an important indicator of growth because they include only older locations.

McDonald’s has more than 33,500 locations worldwide, of which about 20 percent are company operated.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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