Stronger US result underpins McDonald’s second quarter

Jon Condon, 31/07/2013


Australia’s single largest international beef customer, McDonald’s Corporation, filed its second quarter results overnight showing higher sales and profit compared with the same period last year.

Results for the quarter ended June 30 showed that some weakness in restaurant sales in Europe and the Asia-Pacific-Africa regions was offset by positive growth in the larger North America region.

McDonald’s operates about 14,200 stores in North America, 7400 in Europe and 9600 in the Asia/Pacific/Middle East/Africa region.

“McDonald's results for the quarter reflect our efforts to strengthen our business momentum for the long-term,” chief executive officer Don Thompson said. “While the informal eating-out market remains challenging and economic uncertainty is pressuring consumer spending, we're continuing to differentiate the McDonald's experience by uniting consumer insights, innovation and execution,” he said.

Second quarter results included a global comparable sales increase of 1pc; consolidated revenue increase of 2pc; and consolidated operating income increase of 2pc.

In the company’s US division, second quarter comparable sales rose 1pc while operating income was relatively flat. New product introductions across key growth categories including chicken and beef, and ongoing support for the budget offer Dollar Menu supported the sales performance.

The Europe division’s comparable sales were down 0.1pc as negative results in Germany and France were nearly offset by solid performance in the UK and Russia. While Europe's results continue to be impacted by the challenging consumer environment, second quarter operating income increased 5pc and drove the majority of the company's operating income growth for the period.

In Asia/Pacific, Middle East and Africa (APMEA), second quarter comparable sales declined 0.3pc primarily due to negative results in China, Australia and Japan, which was nearly offset by positive performance in other markets. The segment's quarterly operating income declined 1pc.

CEO Don Thompson said based on recent sales trends, results for the remainder of the year were expected to remain challenged.

The company’s 2Q financial report said its results and financial condition are affected by global and local market conditions, and the prolonged challenging economic environment can be expected to continue to pressure results.

“The current global environment has been characterised by persistently weak economies, high unemployment rates, inflationary pressures and volatility in financial markets. Many major economies, both advanced and developing, are also facing significant economic issues,” it said.

  • In the US, these included concerns about the federal deficit and the potential adverse effects of the government spending cuts that became effective in early 2013.
  • The Eurozone debt crisis also continued to depress consumer and business confidence and spending in many European markets.
  • Important markets in Asia like China, which have been key drivers of global growth, had been experiencing declining growth rates. Uncertainty about the long-term investment environment could further depress capital investment and economic activity.

“These conditions are adversely affecting sales and/or guest counts in most of our major markets,” the quarterly report said.

“To mitigate their impact, we have intensified our focus on value as a driver of guest counts through menu, pricing and promotional actions. These actions have adversely affected our margin percent, and margins will remain under pressure,” it said.

Listed among key factors that can affect McDonald’s operations, plans and results in this environment were:

  • the effectiveness of its supply chain management to assure reliable and sufficient product supply on ‘favourable terms’
  • the impact on restaurant sales and margins of ongoing commodity price volatility, and the effectiveness of pricing, hedging and other actions taken to address this environment
  • the challenges and uncertainties associated with operating in developing markets, and
  • the impact of nutritional, health and other scientific inquiries and conclusions, which constantly evolve and often have contradictory implications, but nonetheless drive popular opinion and regulation (including tax initiatives intended to drive consumer behaviour) in ways that could affect McDonald’s business.



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