News Column

McDonald's profit misses expectations in 2Q on flat sales

July 22, 2014

By Jessica Wohl, Chicago Tribune

July 22--McDonald's Corp. reported another disappointing quarterly profit on Tuesday, with earnings and sales once again missing Wall Street's expectations as the world's largest restaurant company struggles to keep up with more nimble competitors.

Shares of McDonald's, a component of the Dow Jones industrial average, were down 2 percent to $95.63 in premarket trading.

The world's largest restaurant company said same-store sales, or sales at locations open at least 13 months were "relatively flat" during the second quarter. U.S. same-store sales fell 1.5 percent.

Analysts, on average, were looking for systemwide same-store sales to rise 0.8 percent and had anticipated a 0.3 percent decline in U.S. same-store sales, according to Consensus Metrix.

The company admitted that it has work to do this year. Its poor performance came just a day after Chipotle Mexican Grill turned in a 17.3 percent jump in its same-store sales and a much higher-than-anticipated profit.

McDonald's CEO Don Thompson said that the company's "near-term results are expected to remain muted," and that McDonald's sees "sizable growth opportunities."

Oak Brook-based McDonald's said it earned $1.39 billion, or $1.40 per share, on $7.18 billion in revenue, up from a profit of $1.40 billion, or $1.38 per share, on $7.08 billion in revenue a year earlier. While profit and sales increased, they both missed analysts' expectations. Analysts, on average, had been looking for a profit of $1.44 per share on $7.29 billion in revenue.

McDonald's said it expects 2014's same-store sales to be relatively similar to its performance so far this year through June. It said July same-store sales should decline.

Tuesday's results come a day after McDonald's and competitor Yum Brands Inc. faced a reputation crisis after Chinese regulators shut a local meat supplier following a TV report that showed workers picking up meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat.

McDonald's and Yum said they immediately stopped using the supplier, Shanghai Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI Group that served restaurants in the Shanghai area. OSI Group said it took the TV report very seriously and was dealing with the issue quickly, adding that management believed the incident was an isolated event and adding that the company does not tolerate any actions that compromise food safety.

McDonald's has been saying for months that it will take time for efforts such as service improvements to lead to better results.

"It's important to underscore that it will take time for consumers to notice the changes and reward us with increased visits. This is not about a silver bullet," Thompson said during a conference call in April, when McDonald's reported first-quarter sales and profit that missed Wall Street expectations.

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Source: Chicago Tribune (IL)

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