McDonald's strong sales brighten its profits picture
By Associated Press
Published October 14, 2004
CHICAGO - McDonald's Corp. said Wednesday its third-quarter profits will come in well above Wall Street estimates, reflecting a sales resurgence in its U.S. restaurants that remains in full force.
The announcement prompted the latest jump in McDonald's stock, which has doubled since the company began reviving flagging sales and earnings in spring 2003. Shares rose $1.31, or 4.8 percent, to close at $28.86 on the New York Stock Exchange.
The fast-food giant said its per-share profits for the quarter will top last year's by about 42 percent, largely because of impressive September sales. Its earnings estimate of 61 cents per share is 12 cents higher than the consensus estimate of analysts surveyed by Thomson First Call.
McDonald's said earnings, due out Tuesday, will include 7 cents per share from a tax benefit from an international transaction and other items. Chief executive Charlie Bell also singled out robust U.S. sales, which he credited to a combination of new menu items, longer restaurant hours, stronger marketing, and improved service and food quality.
The company has enjoyed six straight quarters of higher comparable sales worldwide, burying an extended slump since overhauling management, cutting back on expansion, selling off non-McDonald's brands, making a push for healthier food and adding entree-sized salads, McGriddles breakfast sandwiches, white-meat chicken nuggets and chicken strips.
"They've hit a grand slam in a very difficult environment over the last 12 to 18 months," said analyst Douglas Christopher of Crowell Weedon and Co., referring to restaurant-industry competition, growing obesity concerns and a brief mad-cow scare.
"It started with a focus back on the McDonald's brand," he said. "And adding three to five stores a day was crazy. That affected profitability and cash flow, and everything started to fall back into place after that."
Efforts to shed its junk food image extend across the Atlantic, where the company is sending its famous Golden Arches logo on a two-week vacation as the company tries to convince British customers that its menu has shifted from junk food to healthy eating.
The temporary campaign, beginning Friday, will replace the Golden Arches with a yellow question mark and the line: "McDonald's. But not as you know it."
Sales at McDonald's outlets in Britain fell last year during a time of growing concern over the nation's obesity problem.
The campaign also will display close-up pictures of new choices such as fresh salads, free-range eggs, semiskim organic milk and fruit. Booklets detailing the new menus will be sent to 17-million households in Britain.
The ads are meant to show that "the changes are big and bold," said John Hawkes, the fast food giant's British marketing director. McDonald's also recently announced it was reducing portion sizes in Britain.
The new campaign is a "testament to their ongoing commitment to shaking up perceptions of the brand in the U.K.," said Paul Lawson, a director at Leo Burnett, the Chicago advertising agency behind it.
But Eugen Beer, creative director of Kaizo, a London public relations agency, said using a question mark instead of the famous Golden Arches created a sense of vacuum. "Brands can't leave a vacuum, it's a terrible sign of weakness."
Back in the States, September sales results showed gains of 10.6 percent at U.S. comparable stores - restaurants open 13 months or more - and 7.3 percent for comparable sales worldwide. For the third quarter, comparable sales were up 8.5 percent at its more than 13,000 U.S. restaurants over the same period of 2003 and 5.8 percent worldwide. U.S. comparable sales are up 10.4 percent this year.
Bell, who has been undergoing chemotherapy for colon cancer, said McDonald's profitability continues to improve thanks to sales strength and a focused strategy. He noted that the U.S. sales increases came despite hurricanes and heavy rains that affected results in eastern and southern regions.
The U.S. gains more than offset another lackluster showing in Europe, where McDonald's sales were flat for the third quarter. Comparable sales in Europe declined 0.6 percent for September.
