Low prices help McDonald's beat profit expectations

Low prices help McDonald's beat profit expectations

Stock Market Predictions

LOS ANGELES (Global Markets) - McDonald's Corp (MCD.N) reported a higher-than-expected quarterly profit on Friday as low prices brought in strong sales in Europe and the United States. The company's share price rose 3.1 percent.

June sales at restaurants open at least 13 months were far stronger than analysts expected. During the month, same-restaurant sales were up 6.9 percent in the United States, 9.1 percent in Europe and 4.8 percent in the Asia/Pacific, Middle East and Africa unit.

Analysts were expecting June same-restaurant sales to rise 2 percent in the United States, 3 percent in Europe and 2 percent in the Asia/Pacific, Middle East and Africa unit.

Europe is McDonald's largest market for sales, contributing about 40 percent of revenue. The United States is a close second.

"It's the consistency of the everyday value message that has helped them a lot," said Lazard Capital Markets analyst Matthew DiFrisco, who added that McDonald's is good at adjusting its marketing to keep customers coming in.

McDonald's has been taking market share from its fast food peers for many months. It has benefited from improving food quality, adding Dollar Menu items and introducing high-margin beverages such as coffee and fruit smoothies to broaden its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

It is also renovating restaurants in Europe and the United States.

Europe's top performers were France, Britain and Russia.

"Broadly speaking, there was just a little bit of a lift in people's willingness to spend in Europe," said Bernstein Research analyst Sara Senatore.

McDonald's global same-restaurant sales rose 5.6 percent in the second quarter. It forecast July results that are up 4 percent to 5 percent overall.

Janney Capital Markets analyst Mark Kalinowski, who correctly signaled that the June U.S. result would be significantly above what many analysts were targeting, said some key competitors are floundering.

In particular, he said, Carrols Restaurant Group (TAST.O) -- one of privately held Burger King's biggest franchisees -- saw same-restaurant sales at its Burger King BKCBK.UL restaurants fell 3.6 percent in the second quarter.

Rival Yum Brands Inc (YUM.N) recently reported another quarter of strong earnings based on growth in China, but its U.S. Taco Bell business is hurting from a dismissed lawsuit over the quality of its ground beef.

Shares in Yum, also the parent of the KFC and Pizza Hut chains, were up 0.4 percent. Stock in burger chain Wendy's (WEN.N) was up 1.3 percent.

Shares of McDonald's, which has 32,000 restaurants, were up $2.69 to $89.22 on the New York Stock Exchange in the middle of the trading day. The shares closed at an all-time high of $86.54 on Thursday.

HOLDING THE LINE ON PRICES?

Second-quarter net income rose 15 percent to $1.41 billion, or $1.35 per share, topping the average analyst forecast of $1.28 per share, according to Thomson Global Markets I/B/E/S.

Foreign currency translation boosted earnings by 10 cents per share in the second quarter.

Revenue rose to $6.91 billion from $5.95 billion.

Analysts said the strong results showed that McDonald's has pricing power.

"We will continue to consider future price increases," McDonald's Chief Financial Officer Peter Bensen said on a conference call with analysts.

McDonald's has raised prices on some premium products to help offset higher food costs. The company still expects those costs to rise 4 percent to 4.5 percent in the United States and Europe this year.

McDonald's wants customers to keep coming through its doors, so Bensen said it would be "judicious" with additional price hikes.

"You can bet their competitors wish they would take pricing," said Victory Capital Management analyst Dave Kolpak. "You can't do it if McDonald's doesn't. They're putting the heat on the competition."

(Editing by Gerald E. McCormick and Lisa Von Ahn and Matthew Lewis)

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Esprit falls to 3-week low after profit warning

Esprit falls to 3-week low after profit warning

Stock Market Predictions

HONG KONG (Global Markets) - Shares of Esprit Holdings (0330.HK) fell 8.6 percent to its lowest in about three weeks after the Europe-focused clothing retailer warned of a sharp drop in yearly profit due to one-off restructuring costs.

The stock fell to as low as HK$19.96 before steadying at HK$20.15 as at 0200 GMT, still down 7.8 percent. That compared with a 0.76 fall in the benchmark Hang Seng Index .HSI.

Esprit said late on Thursday that it was set to post a sharp drop in 2010/11 profit as a result of one-off costs related to restructuring. Esprit, whose results are due on September 15, said its board had approved a strategic plan to restructure store operations.

Esprit, which competes with Swedish clothing retailer Hennes & Mauritz AB (HMb.ST), U.S. group GAP Inc (GPS.N) and Spain's Inditex SA (ITX.MC), had said earlier this year that its sales in Europe fell 3.6 percent in local currency terms for nine months ended in March, while Asia-Pacific sales rose 26.3 percent. Sales in Europe accounted for 79.1 percent of total turnover during the period.

(Reporting by Donny Kwok; Editing by Ken Wills)

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McDonald's growth defies volatile economy

McDonald's growth defies volatile economy

Stock Market Predictions

(Global Markets) - McDonald's Corp (MCD.N) reported a higher-than-expected third-quarter profit on Friday as new menu items and renovations lifted sales during a summer of extreme economic volatility, and its shares rose nearly 3 percent.

The world's biggest restaurant company and its franchisees have been investing in the business at a time when diners are reacting to economic volatility by carefully managing their spending. The strategy has helped McDonald's win market share from rivals that are smaller and have less financial heft.

By adding Dollar Menu items and introducing high-margin beverages such as coffee and fruit smoothies, McDonald's has broadened its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

The company, which also has accelerated its global expansion, has been making its restaurants in Europe and the United States more modern and inviting. That effort is boosting sales and making service faster and more efficient.

(For a graphic on McDonald's results, click link.reuters.com/xad64s)

Sales at established restaurants rose 6.6 percent in September. That was nearly twice the gain analysts expected and landed amid debt woes in Europe, stubbornly high unemployment in the United States and worries about slower growth in China.

U.S. same-restaurant sales rose 5 percent, while Europe was up 6.9 percent and Asia/Pacific, Middle East and Africa had a 6.8 percent increase.

The company forecast a 4 to 5 percent increase in sales at established restaurants in October.

McDonald's said sales at established restaurants in China were up 11.3 percent for the third quarter. KFC parent Yum Brands Inc (YUM.N), which is the No. 1 U.S. restaurant brand in the world's fastest-growing major economy, recently reported a 19 percent gain in same-restaurant sales.

Strong September results from Europe, especially Germany, helped allay fears that austerity measures would pummel demand in the region, said Lazard Capital Markets analyst Matthew DiFrisco.

McDonald's "continues to evolve into more of a staple than a discretionary brand," said DiFrisco, adding that the company also turned in solid results from the United States.

The company nudged up its forecast for food and other costs, but DiFrisco said this was no cause for concern.

"They are managing their costs and margins in an environment where commodity costs are still heady," he said.

BALANCING ACT

"Consumers everywhere continue to be cautious and hesitant to spend," Chief Executive Jim Skinner said on a conference call with analysts.

Restaurant operators of all stripes are grappling with higher costs for beef and other ingredients. McDonald's has raised menu prices to take some of the sting out of that hit, but said it would weigh future increases carefully.

"We are very judicious about price increases because maintaining everyday affordability, particularly in the environment that we are in today, is paramount," Chief Financial Officer Peter Bensen said on the conference call.

"They seem to be listening to their customers," said Michael Yoshikami, founder and CEO of YCMNET Advisors.

McDonald's customers wanted things like healthier kids' meals, good coffee that was cheaper than at Starbucks Corp (SBUX.O) and premium hamburgers. The company delivered on those demands and now is reaping the benefits, Yoshikami said.

Third-quarter net income rose to $1.51 billion, or $1.45 per share, from $1.39 billion, or $1.29 per share, a year ago.

Analysts on average had forecast $1.43 a share, according to Thomson Global Markets I/B/E/S.

Earnings per share rose more than 12 percent but were up only about 6 percent excluding foreign currency benefits.

Revenue rose 13.8 percent to $7.17 billion. Sales at established restaurants were up 5 percent globally in the quarter, with increases of 4.4 percent in the United States, 4.9 percent in Europe and 3.4 percent in the Asia/Pacific, Middle East and Africa region.

McDonald's shares were up 2.9 percent at $91.57 in afternoon trading on the New York Stock exchange.

(Additional reporting by Brad Dorfman in Chicago; editing by Gerald E. McCormick, John Wallace and Matthew Lewis)

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Caterpillar sees slowdown in dealer sales growth

Caterpillar sees slowdown in dealer sales growth

Stock Market Predictions

BOSTON (Global Markets) - Caterpillar Inc (CAT.N) said growth in dealer sales of its heavy equipment slowed in the three months ended July, particularly in North America, reinforcing concerns about the struggling U.S. economy.

The world's largest maker of construction equipment said on Thursday that dealer sales -- an indicator of future revenue -- rose 35 percent worldwide over the past three months, a slower rate than the 45 percent growth reported in July.

Caterpillar shares were down 4.7 percent at $83.56 on Thursday morning, exceeding the 4.1 percent drop in the S&P 500 Index. .SPX Over the past year, Caterpillar shares have risen about 26 percent, outpacing the 10 percent climb of the Dow Jones industrial average .DJI.

Growth in North America slowed most dramatically -- to 27 percent from 50 percent -- and growth in the Asia-Pacific region dipped to 20 percent from 28 percent. Latin America was the one area to report an acceleration, with sales growth rising 1 point to 52 percent.

The report, which came in a filing with the U.S. Securities and Exchange Commission, marked the third straight decline in the growth rate from the most recent peak of a 66 percent rise in dealer sales for the three months ended in April.

Caterpillar, whose competitors include Japan's Komatsu Ltd (6301.T) and South Korea's Doosan Infracore Co Ltd (042670.KS), warned investors last month that economic growth in the United States and other developed economies had been slower than expected this year, and also warned of signs of sagging demand in China, the world's fastest-growing major economy.

A report by the American Institute of Architects released on Wednesday also suggested nonresidential construction activity was slowing down in the United States. The slump in building homes and other buildings has contributed to the nation's persistent high unemployment rate by reducing demand for blue-collar workers in the construction trade.

(Reporting by Scott Malone, editing by Matthew Lewis)

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