NEW YORK (AP) - Consumers helped bring McDonald's Corp. back to profitability in the second quarter by spending on breakfast biscuits, new chicken sandwiches and drinks despite the tough economy in the U.S.
The results Wednesday appeared to ease some concerns that the chain will be hurt by the slowdown in consumer spending permeating the nation's restaurant industry.
"They've actually held up very well," said RBC Capital Markets analyst Larry Miller, adding the McDonald's may be benefiting from consumers looking for lower-priced options for dining out.
But the nation's No. 1 hamburger chain also warned that it expects beef and chicken costs to rise substantially in the U.S. and Europe through the rest of this year, which sent the company's shares down amid the potential new fear for wary restaurant investors.
McDonald's earned $1.19 billion in the second quarter, including a gain from the sale of its stake in sandwich chain Pret A Manger. A year earlier, the company posted a loss of $711.7 million stemming from charges on the sale of its Latin America and Caribbean businesses.
The Oak Brook, Ill.-based company said revenue rose 4 percent to $6.08 billion from $5.84 billion a year ago, beating analysts' predictions.
Investors had been eagerly awaiting the U.S. sales figures as a way to gauge whether the fast food chain can withstand the tough economy as consumers cut back on eating out. McDonald's reported its first monthly decline in U.S. same-store sales in the first quarter, leading some to wonder whether even the Golden Arches was being hit by consumers' reluctance to spend.
But in the second quarter, McDonald's reported same-store sales increases every month. For June, the company said same-store sales rose 5.6 percent for the month overall and jumped 3.8 percent in the U.S.
McDonald's specifically credited its breakfast items, new chicken offerings and beverages with the sales increase. During the quarter, the chain introduced a new chicken biscuit sandwich for breakfast, a chicken sandwich for lunch and espresso-based coffee drinks in some locations.
For the quarter, same-store sales grew in every region, rising globally by 6.1 percent. The measure of sales at locations open at least a year is an important performance indicator since it excludes the growth seen from opening new locations.
U.S. same-store sales rose 3.4 percent for the quarter, up from 2.9 percent growth in the first quarter — a sign that cash-strapped consumers continued to spend at McDonald's even as other restaurant companies see sales trail off as fewer customers walk through the door.
In Europe, same-store sales jumped 7.4 percent. They rose 8.8 percent in the Asia/Pacific, Middle East and Africa division.
McDonald's also said it expects beef costs to rise between 8 percent and 9 percent in the U.S. and Europe and chicken costs to jump between 5 percent and 6 percent in the U.S. and between 7 percent and 8 percent in Europe.
"I've got to imagine that investors are a little bit spooked" by the projections," Miller said. "It's only getting tougher, even for these guys."
Beef and chicken costs have climbed for virtually all restaurant companies due to soaring prices of corn and soybeans — key ingredients in animal feed.
McDonald's shares fell $1.31 to $58.81 in midday trading. |