McDonald's Warns of Challenging Outlook
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By Reuters,
Roll Call
July 22, 2013

McDonald's on Monday dashed investor hopes that its business would strengthen in the second half of the year, blaming tougher competition in the U.S. and weaker sales in Europe.

The world's biggest restaurant chain by sales reported a lower-than-expected quarterly profit and said it expects global same-restaurant sales in July to be relatively flat, sending its shares down more than 2 percent in early trading. "Based on recent sales trends, our results for the remainder of the year are expected to remain challenged," Chief Executive Don Thompson said in a statement.

Wall Street analysts had expected McDonald's business to pick up in the middle of this year as food inflation and other pressures ease.

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"I would have liked to have seen them be a little more positive on things," Edward Jones analyst Jack Russo said.

The latest quarterly results from the seller of Big Mac hamburgers and Happy Meals for children heaps pressure on Thompson, who was promoted to the CEO position in July 2012, when the chain was enjoying a multi-year run of rising sales and profits.

Still, Russo said Wall Street would likely give the well-regarded McDonald's CEO a pass for a bit longer: "I don't see an operator in the United States or Europe really tearing it up."

In the second quarter ended June 30, global sales at McDonald's restaurants open at least 12 months rose 1 percent, in line with analysts' expectations.

McDonald's said second-quarter same-restaurant sales in the United States rose 1 percent, missing the average analysts' forecast of a 1.5 percent increase.

The company is fighting to boost sales as smaller U.S. rivals such as Wendy's Co and Burger King Worldwide Inc roll out attention-grabbing menu items and limited-time offers.

Wendy's, known for its thick Frosty shakes and square hamburgers, recently launched a Pretzel Bacon Cheeseburger that looks on track to become the chain's best-selling new product in at least a decade.

​"This pressure on McDonald's could last over the third quarter as a whole, and perhaps beyond, if Wendy's adds its Pretzel Bacon Cheeseburger as a permanent menu item - which looks increasingly likely," Janney Capital Markets analyst Mark Kalinowski said.

McDonald's, which still dominates the fast-food industry, has been offering late-night breakfasts, tweaking other menus and advertising value-priced meals to bring in more traffic.

In Europe, same-restaurant sales were down 0.1 percent in the quarter - the third consecutive quarter of declining sales in the region. In the Asia/Pacific, Middle East and Africa (APMEA) region, second-quarter sales fell 0.3 percent.

Analysts polled by Consensus Metrix had forecast declines of 0.1 percent in Europe and 0.2 percent in APMEA.

McDonald's reported net income of $1.40 billion, or $1.38 per share, for the second quarter, up from $1.35 billion, or $1.32 per share, a year earlier.

Analysts on average had expected earnings of $1.40 per share in the quarter.

Sales rose 2.4 percent to $7.08 billion.

Shares of McDonald's were trading at down $2.32 at $97.89.