Bloomberg News

McDonald’s 3.1% Sales Increase for May Misses Estimates

June 08, 2011

(Updates share price in fifth paragraph.)

June 8 (Bloomberg) -- McDonald’s Corp., the world’s largest restaurant chain, said sales at stores open at least 13 months rose 3.1 percent in May, falling short of analysts’ estimates as U.S. consumers pulled back spending.

Analysts projected same-store sales would advance 3.6 percent, according to the median of six estimates compiled by Bloomberg News. U.S. sales advanced 2.4 percent, the Oak Brook, Illinois-based company said today in a statement, the slowest monthly growth since February 2010.

Chief Executive Officer James Skinner introduced new drinks including frozen-strawberry lemonade to lure U.S. consumers, whose confidence unexpectedly declined to a six-month low in May over concerns about the labor market. McDonald’s, along with other restaurant operators, has raised prices over the past year to help offset surging meat costs.

“Consumers are trading down within the menu,” said Peter Saleh, a restaurant analyst at Telsey Advisory Group LLC in New York. “They’re buying cheaper items, maybe they’re trading down to some of the value menu items.”

McDonald’s rose 1 cent to $81.15 at 4 p.m. in New York Stock Exchange composite trading. The stock has gained 5.7 percent this year.

“Generally quick-service restaurants, which includes McDonald’s, are seeing a little bit more pressure,” said Lynne Collier, an analyst at Sterne Agee & Leach Inc. in Dallas who recommends buying the shares. “There’s still uncertainty out there, but I don’t sense in the restaurant business that the consumer has weakened significantly.”

Europe, Asia

Sales climbed 2.3 percent in Europe and increased 4.3 percent in Asia, Africa and the Middle East. Analysts predicted 4 percent for both regions, and 2.9 percent in the U.S.

In Europe, “strong performance” in France, Russia and the U.K. was partially offset by Germany, McDonald’s said.

“Germany is a market that has seen inconsistent results recently as consumers hesitate to spend amid the Eurozone debt crisis,” Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York, wrote in a research note today. She rates the shares “outperform.”

The strengthening in foreign currencies will boost second- quarter profit by as much as 10 cents a share, the company also said. McDonald’s will report quarterly earnings on July 22.

The fast-food burger chain, with more than 32,000 locations worldwide, makes about two-thirds of its revenue from outside the U.S. An increase in foreign currencies helps boost earnings when sales are converted in dollars.

Intercontinental Exchange Inc.’s Dollar Index has dropped 6.9 percent this year and reached 72.696 on May 4, the lowest level since July 2008.

April comparable-store sales advanced 6 percent globally at McDonald’s. Comparable, or same-store, sales are a key measure of a company’s growth because they exclude the impact of store openings and closings.

The U.S. Department of Agriculture predicts that meat prices may rise as much as 7 percent in the U.S. this year.

--With assistance from Courtney Dentch, Catarina Saraiva and Caroline Salas Gage in New York, Shobhana Chandra in Washington, and Steve Matthews in Atlanta. Editor: Cecile Daurat

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at Rajello@bloomberg.net


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