McDonald's Sales Growth Higher Than Expected in Dec.
CHICAGO – McDonald's Corp. (MCD) Tuesday forecast fourth-quarter earnings slightly ahead of Wall Street estimates as strength in its European business helped push December same-store sales results beyond expectations.
McDonald's shares were up 53 cents, or 1.5 percent, at $35 Tuesday on the New York Stock Exchange.
McDonald's, the world's largest restaurant company, expects to report earnings of 48 cents per share for the fourth quarter, including a combined 3-cents-a-share hit from asset impairment charges and the impact of the strengthening dollar.
The company did not give the breakdown between charges and foreign currency translation, but Prudential analyst Larry Miller said the impairment charges were 2 cents per share.
Analysts, on average, had forecast earnings of about 47 cents a share, according to Reuters Estimates. Those estimates do not typically include one-time items such as charges.
In the fourth quarter of 2004, McDonald's earned 31 cents a share.
Sales at McDonald's hamburger restaurants open at least 13 months, a key retail measure known as same-store sales, rose 5 percent in December. The results were ahead of two Wall Street analysts' estimates calling for a rise of 3 percent to 3.7 percent.
Same-store sales rose 4.4 percent in the United States, though analysts had expected a rise of about 6 percent. The company said sales of breakfast and chicken items as well as new gift cards were strong during the month.
In Europe, McDonald's No. 2 market, same-store sales rose 4.6 percent, helped by a Monopoly promotion in Germany as well as strength in France and Russia. Analysts had been expecting European sales to be about flat.
"Europe was a big surprise," Miller said in a note to clients. "The U.S. continues to perform and European sales are steadily improving, which could lead to better margins and upward EPS (earnings per share) revisions in 2006."
It was the seventh straight month of positive same-store sales results in Europe, which had lagged the United States in revitalizing sales over the last three years.
Same-store sales rose 5.9 percent in McDonald's Asia-Pacific, Middle East and Africa division.
On Monday, the company said it was expecting to make more changes to its business, including menu items.
"You will see a greater variety of freshly prepared foods, with a specific focus on the chicken category and breakfast," Ralph Alvarez, president of McDonald's North America, told the National Retail Federation's annual conference in New York.
McDonald's, which Alvarez said had fallen into the trap of focusing on getting bigger instead of getting better, has been working to revitalize its business, rebuilding and refurbishing its restaurants, adding new menu items and changing its advertising to target specific consumers.
"As a brand, we have to follow the trend," Alvarez said, referring to increasing demand for chicken items despite the fact that McDonald's got its start as a hamburger joint.
Alvarez also said the restaurant chain will expand its beverage offerings, and in March, it will begin putting nutritional information on all product packaging.
In order to respond to the hectic lives of its customers and the strong sales at its drive-thrus, he said McDonald's is working on on-the-go product packaging and putting side-by-side lanes at drive-thrus to speed up the flow of traffic.
Asked whether McDonald's would consider extending its breakfast hours, Alvarez said: "It's something that we hope to be able to do some day" but said it involves changing the set-up of its kitchens.
Alvarez said McDonald's will continue to use targeted advertising on billboards, in magazines and on television to reach its different customers, like mothers or teenagers.
"It's no longer about a 30-second commercial during prime time," he said.