McDonald's rebounds with 29% rise in profit

But same-store sales fell 3.6%, continuing trend

April 29, 2003|By BLOOMBERG NEWS

OAK BROOK, Ill. - McDonald's Corp., the world's largest hamburger chain, announced yesterday that first-quarter profit increased as sales rose at the fastest pace in more than a year, helped by the strengthening of the euro.

The company's shares rose $1.12, or 7 percent, to a three-month high of $16.93 as McDonald's rebounded from its first-ever loss in the fourth quarter of last year.

McDonald's said it's "on its way" toward meeting Chief Executive Officer James R. "Jim" Cantalupo's 2005 goal of boosting restaurant sales by as much as 5 percent a year. Sales fell the past two years amid an expansion that detracted management's attention from existing stores, investors said. Cantalupo, brought out of retirement in January, is focusing on food and service, rather than on adding outlets.

"The plan is very well laid-out and very well thought through," said Simon Burton, an analyst at Banc of America Capital Management, which manages about $260 billion, including McDonald's shares. "I think they can execute it."

Net income rose 29 percent to $327.4 million, or 26 cents a share, from $253.1 million, or 20 cents a share, in the first quarter of last year.

Revenue, which includes sales and franchise fees, rose 5.6 percent to $3.8 billion from $3.6 billion, McDonald's said in a statement.

Profit excluding accounting changes would have risen to 29 cents from 27 cents, McDonald's said. On that basis, analysts were expecting 28 cents, according to analysts.

The gain in currencies including the euro added 2 cents a share to profit and $168.4 million to revenue, McDonald's said. The euro has risen 23 percent against the dollar in the past year.

Revenue excluding currency translation would have increased 1 percent. McDonald's, with more than 31,000 restaurants in 119 countries, gets over half its revenue from overseas.

Same-store sales at outlets open at least 13 months fell 3.6 percent, McDonald's said. Same-store sales have declined every month for more than a year.

Cantalupo is toasting hamburger buns longer, trying new burger seasonings and adding healthier items such as the California Cobb salad to try to stem the decline.

The company plans to open 10 McCafes in the United States this year and introduce McGriddle breakfast sandwiches in Canada in June, executives said in a conference call with investors. McCafe restaurants serve frothy coffee blends, pastries and sandwiches.

Cantalupo, 59, replaced Jack Greenberg, whose expansion strategy hurt sales by shifting McDonald's attention away from quality control at existing restaurants, investors have said.

Analysts and investors had said Greenberg needed to shut more restaurants, scale back remodeling and change a $1 menu that franchisees said sparked a price war and hurt profits.

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