McDonald’s profit rises 1.4% as dollar menu helps U.S. sales

January 23, 2013 10:40 AM

McDonald’s Corp., the world’s largest restaurant chain by sales, said fourth-quarter profit rose 1.4 percent as its dollar menu and McRib sandwich helped U.S. sales.

Net income increased to $1.4 billion, or $1.38 share, from $1.38 billion, or $1.33, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Analysts projected $1.33, the average of 28 estimates compiled by Bloomberg.

Chief Executive Officer Don Thompson boosted advertising of the chain’s dollar menu items, such as McDouble burgers and McChicken sandwiches, to draw Americans as consumer confidence falls. Sales at U.S. stores open at least 13 months rose 0.3 percent in the quarter. Analysts projected a 0.5 percent drop, the average of 22 estimates compiled by Consensus Metrix.

“There’s a significant push on value with a lot of media behind it on TV,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. While that helped McDonald’s put up “respectable numbers” in the U.S. for the quarter, January may be weaker because of bad weather and the Social Security tax increase, he said.

The shares advanced 0.6 percent to $93.48 at the close in New York. The stock lost 12 percent last year, compared with a 2.6 percent drop for the Standard & Poor’s 500 Restaurants Index.

Comparable Sales

Quarterly comparable-store sales rose 0.1 percent globally, compared with an estimate for a decline of 0.3 percent, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group.

“For the near-term we expect top and bottom-line growth to remain pressured, with January’s global comparable sales expected to be negative,” Thompson said in today’s statement.

In the U.S., McDonald’s has seen more competition from Burger King Worldwide Inc., which has recently introduced new food, and Yum! Brands Inc.’s Taco Bell chain, which has been advertising value items such as 99-cent beefy nacho grillers. Thompson has said McDonald’s will have stronger new menu items this year than in 2012.

Earlier this month, the fast-food chain, which has more than 34,000 locations worldwide, began testing chicken wings in Chicago to lure customers and boost revenue. McDonald’s previously sold the bone-in wings in Atlanta.

McDonald’s also will introduce Fish McBites at U.S. stores soon, and new beef sandwiches, chicken entrees, breakfast items and drinks later this year, Thompson said on a conference call today.

Consumer Confidence

Confidence among U.S. consumers unexpectedly fell in January, after also declining last month, as higher payroll taxes began to take hold. The Thomson Reuters/University of Michigan preliminary consumer sentiment index dropped to 71.3, the lowest level since December 2011.

Same-store sales fell 0.6 percent in Europe and 1.7 percent in the company’s Asia Pacific, Middle East and Africa region. Analysts estimated decreases of 1.1 percent and 0.8 percent, respectively.

McDonald’s will spend $3.2 billion this year to open as many as 1,600 new stores and remodel locations worldwide. The chain has been revamping eateries in the U.K. and elsewhere in Europe, where it gets about 40 percent of revenue.

Comparable-store sales are considered an indicator of a retailer’s growth because they include only older locations.

Revenue increased 1.9 percent to $6.95 billion in the quarter. Analysts estimated $6.9 billion, on average.

(McDonald’s will hold a conference call at 11 a.m. New York time. To listen, visit MCD US <Equity> EVT <GO>.)

Bloomberg News

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