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McDonald's Earnings Down but Europe a Bright Spot

By Reuters
Published | Updated

LOS ANGELES – McDonald's Corp. (MCD) on Thursday reported a 6 percent drop in quarterly earnings after a tax benefit boosted year-ago results, but sales and operating profit were lifted by stronger markets like Germany, France and Australia.

Last week, McDonald's said sales of its new Premium Chicken sandwiches (search), a strong breakfast business and later hours had helped drive sales in the United States, its flagship market, during the quarter.

In Europe, McDonald's No. 2 market, progress has been slow, in part due to economic weakness in Germany. However, in recent months demand for products like the premium Big Tasty hamburger in Germany and France's lower-priced Le Petit Plaisir chicken sandwich have boosted sales in those markets.

Third-quarter net income fell to $735.4 million, or 58 cents per share, compared with $778.4 million, or 61 cents per share, a year earlier. Last year's results included a tax benefit of 7 cents per share.

Excluding a one-time gain for selling a stake in an unnamed foreign market, the world's largest restaurant company earned 56 cents per share.

On that basis, analysts had predicted earnings of 55 cents a share on average before last week's announcement, according to Reuters Estimates.

During the quarter, revenue rose 8 percent to $5.33 billion, while operating income climbed 6 percent to $1.2 billion. Sales at McDonald's restaurants open at least 13 months, a key retail measure known as same-store sales, were up 4.1 percent.

McDonald's, whose biggest rivals are Burger King Corp. (search) and Wendy's International Inc. (WEN), credited the improved European business, including developing markets like Russia, as well as strength in its Australian business for its performance in the quarter.

Nearly three years ago, McDonald's embarked on an aggressive turnaround shortly after posting its first quarterly loss as a public company. Since then, sales in the United States have soared thanks to new menu items like meal-sized salads and Chicken Selects fried chicken strips, the catchy "I'm Lovin' It" global marketing campaign, and cashless payments.

Shares of McDonald's, a Dow Jones industrial average component, trade at about 15.1 times next year's earnings estimates, in line with the overall Dow Jones Industrial Average. The stock closed at $33.69 Wednesday on the New York Stock Exchange.