McDonald’s Reports First Quarter Results Below Forecast
Fast-food giant McDonald’s Corp. (NYSE: MCD – $99.62) said profit for the first quarter dropped 5.2% as the company worked to revive its U.S. sales growth following a challenging 2013. Overall, the Oakbrook, Illinois-based restaurant chain reported a profit of $1.2 billion, or $1.21 a share, down from $1.27 billion or $1.26 a share a year earlier. Revenue improved 1.4% to $6.7 billion, though costs rose faster at 2.3%. Analysts had forecast earnings of $1.24 a share on revenue of $6.72 billion. Global sales at restaurants open more than a year rose 0.5% during the quarter, helped by higher average checks, despite weaker guest traffic in several key markets. In the U.S. same-store sales fell 1.7%, which the company blamed on weaker guest traffic amid challenging industry dynamics and severe winter weather. In Europe, same-store sales grew 1.4%, as positive sales performance in the U.K., France and Russia was partly offset by ongoing weakness in Germany. In the Asia/Pacific, Middle East and Africa regions the metric edged up 0.8%, reflecting strength in China offsetting weakness in Japan. The company reiterated its commitment to improving North American results, in part through customer engagement and menu choices. McDonald’s has struggled to gain traction lately and CEO Don Thompson said the company has lost relevance with some customers and needs to strengthen its menu offerings. Looking to April, he said global sales at restaurants open more than a year is expected to be modestly positive. Although the road ahead is apt to be uneven given increased competition and the still weak economic recovery, management is focusing on modernizing restaurants, expanding its global footprint, improving customer service and tweaking its menu. The company provides strong cash flow and steady, albeit slower, earnings growth and a rising dividend. The shares trade at a reasonable valuation, in my opinion, yielding 3.25% and management is buying back shares. In all, a position in McDonald’s has investment merit for conservative income-minded investors.