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McDonald’s Drops as Quarterly Profit Falls 3.5%

A worker picks up an order of french fries at a McDonald's Corp. restaurant in Little Falls, New Jersey. Photographer: Emile Wamsteker/Bloomberg
A worker picks up an order of french fries at a McDonald's Corp. restaurant in Little Falls, New Jersey. Photographer: Emile Wamsteker/Bloomberg

McDonald’s Corp., the world’s largest restaurant chain by sales, fell the most in more than three years after it said third-quarter profit fell 3.5 percent as sales growth slowed at U.S. stores.

The shares dropped 4.5 percent to $88.72 at the close in New York for the biggest decline since July 2009. McDonald’s has slumped 12 percent this year.

Net income declined to $1.46 billion, or $1.43 a share, from $1.51 billion, or $1.45, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Foreign-currency exchange-rate fluctuations reduced net income by 8 cents a share in the third quarter. Analysts projected $1.47, the average of 26 estimates compiled by Bloomberg.

Chief Executive Officer Don Thompson, who took the helm in July, has tried to draw budget-conscious Americans with a new extra-value menu. Sales at U.S. stores open at least 13 months rose 1.2 percent in the quarter, the slowest growth in 11 quarters. Analysts projected an increase of 1.7 percent, according to 21 estimates compiled by Consensus Metrix.

“Restaurant spending is slowing across the globe,” Bryan Elliott, an analyst at St. Petersburg, Florida-based Raymond James Financial Inc., said in an interview. In response, McDonald’s, along with its rivals, has been advertising and promoting lower-priced items more, he said.

Yum! Brands Inc.’s Taco Bell chain has recently touted Doritos Locos Tacos while Burger King Worldwide Inc. has advertised new chicken items and featured coupons on its website. In the U.S., McDonald’s saw “broad competitive activity,” the company said in the statement. McDonald’s got about 32 percent of its revenue from domestic stores last year.

Dollar Menu

The company will increase advertising for its dollar menu to help boost sales in the U.S. after the extra-value menu didn’t resonate that strongly with consumers, Thompson said during a conference call today. It will also have a “stronger new menu presence” in 2013, he said.

Global comparable-store sales in October are “trending negative,” Thompson said in today’s statement. The fast-food chain hasn’t had a global monthly same-store sales decline in at least eight years.

McDonald’s third-quarter comparable-store sales increased 1.9 percent globally, compared with an estimate for a gain of 2 percent, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group.

Same-store sales climbed 1.8 percent in Europe and 1.4 percent in McDonald’s Asia Pacific, Middle East and Africa region, compared with estimates for growth of 1.4 percent and 1.8 percent, respectively. Same-store sales are considered an important indicator of a retailer’s growth because they include only older locations.

European Sales

The Big Mac seller, which gets 40 percent of revenue from Europe, said value items and remodeled stores helped boost sales in Europe. Russia, the U.K. and France led the region’s same-store sales results, the company said.

McDonald’s, which has more than 33,700 locations worldwide, may also see higher raw-ingredient costs as a smaller U.S. corn crop drives up costs for commodities such as beef and chicken. U.S. food prices may rise as much as 3.5 percent this year and 4 percent in 2013, according to data from the Department of Agriculture.

Third-quarter revenue declined 0.2 percent to $7.15 billion. Analysts estimated $7.17 billion, on average.

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