McDonald’s Revenue Trails Estimates on Slowing U.S. Gains

Oct. 21 (Bloomberg) -- Alix Steel examines McDonald's third-quarter earnings numbers on Bloomberg Television's "In The Loop." (Source: Bloomberg)

McDonald’s Corp. (MCD), the world’s largest restaurant chain, posted third-quarter sales that trailed analysts’ estimates as gains slowed in the U.S. and said global sales this month may be little changed.

Revenue rose 2.4 percent to $7.32 billion, the Oak Brook, Illinois-based company said today in a statement. The average of 23 analysts’ estimates compiled by Bloomberg was $7.33 billion.

Chief Executive Officer Donald Thompson is trying to draw American diners from rival chains with new items such as pumpkin-spice lattes and chicken wings while at the same time offering cheaper fare as low-income consumers restrain spending. Third-quarter sales at McDonald’s U.S. stores open at least 13 months rose 0.7 percent after gaining 1 percent in the previous quarter. McDonald’s said October global comparable-store sales will be little changed from a year ago.

“Maybe Mighty Wings are not resonating,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “The macro is not helping -- the lower-end consumer is definitely struggling.”

Fourth-quarter same-store sales will be similar to recent quarterly trends and restaurant margin will contract, the company said.

Photographer: Michael Nagle/Bloomberg

Cars sit in traffic in front of a McDonald's Corp. restaurant on 42nd Street in Times Square in New York. Close

Cars sit in traffic in front of a McDonald's Corp. restaurant on 42nd Street in Times Square in New York.

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Photographer: Michael Nagle/Bloomberg

Cars sit in traffic in front of a McDonald's Corp. restaurant on 42nd Street in Times Square in New York.

“The current environment continues to pressure results,” Thompson said in the statement.

McDonald’s fell 0.6 percent to $94.59 at the close in New York. The shares have gained 7.2 percent this year, while the Standard & Poor’s 500 Restaurants Index has advanced 19 percent.

Profit Rises

Net income rose 4.6 percent to $1.52 billion, or $1.52 a share, from $1.46 billion, or $1.43, a year earlier, the company said. Analysts estimated $1.51 a share, the average of 24 projections compiled by Bloomberg.

The operating margin at McDonald’s company-owned locations narrowed to 18.7 percent in the quarter from 19.1 percent a year earlier.

While McDonald’s is selling new fare, so are its rivals. Burger King Worldwide Inc. (BKW) has introduced low-fat fries and buffalo chicken strips, while Wendy’s Co. is selling a chicken sandwich on a pretzel bun. Fast-casual companies, such as Chipotle Mexican Grill Inc. (CMG) and Panera Bread Co., also may be taking market share with new menu items and more advertising.

Trailing Rivals

McDonald’s revenue growth is forecast to trail rivals this year. Analysts estimate McDonald’s revenue will increase 2.4 percent this year compared with the 4.9 percent gain projected for U.S. quick-service dining by the National Restaurant Association.

About 32 percent of McDonald’s revenue last year came from the U.S., where it has more than 14,100 stores.

Consumer confidence in the U.S. has fallen for three straight months, indicating that households are becoming pessimistic about the economy. In October, confidence fell to a nine-month low, according to the Thomson Reuters/University of Michigan preliminary consumer sentiment index.

McDonald’s same-store sales rose 0.9 percent globally in the quarter. Analysts estimated a 1 percent increase, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Comparable-stores sales advanced 0.2 percent in Europe and dropped 1.4 percent in the company’s Asia Pacific, the Middle East and Africa region.

McDonald’s is facing pressure in Japan and China, its two largest Asian markets in terms of locations. The chain has recently advertised limited-time offerings in Japan and is promoting the quality and safety of its food in China after an outbreak of avian flu.

Same-store sales are considered an indicator of a company’s growth because they include only older, established locations.

The Big Mac seller has more than 34,700 restaurants worldwide, of which about 19 percent are owned by the company.

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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