Fast food giant McDonald's Corp. (MCD) reported Friday a 12% year-over-year increase in profit for the second quarter, boosted by a positive response to its new Frappes and all-fruit smoothies. Earnings per share for the quarter grew 15%, topping analysts' expectations by a penny, while quarterly revenues also beat their estimates by a whisker.
The company also said it expects the momentum to continue, with July global comparable sales trending in-line with or better than second quarter sales.
In a statement, chief executive officer, Jim Skinner said, "McDonald's second quarter reflects strong top-line and bottom-line results with each area of the world generating higher comparable sales, traffic and profits. This performance demonstrates the popular appeal of McDonald's relevant menu choices."
"What makes McDonald's unique is the distinctive experience we're creating for our customers through menu innovation, restaurant reimaging and operations excellence," Skinner added.
"Consumers visited McDonald's more often to enjoy a wide range of beverage offerings including value-based drinks, frappes and the entire McCafe line-up, everyday value menu options, led by the recently introduced Breakfast Dollar Menu, and classic core favorites like Chicken McNuggets," the company said recently.
Despite the economic crisis curbing discretionary spending, the Dow component has continued to outperform the informal eating out market and gain market share with its themed food events, three-and four-price tier menus, restaurant reimaging and extended hours. Not long ago, the company also began selling strong coffee to capture market share from specialty coffee retailer Starbucks Corp. (SBUX), and installed counters to sell cappuccino and lattes through 2009.
The Oak Brook, Illinois-based world's largest hamburger chain posted net income of $1.23 billion or $1.13 per share for the second quarter, up from $1.09 billion or $0.98 per share in the prior-year quarter. Net income also grew sequentially from $1.09 billion or $1.00 per share in the first quarter.
On average, 21 analysts polled by Thomson Reuters expected the company to earn $1.12 per share for the second quarter. Analysts' estimates typically exclude special items.
The company noted that foreign currency translation had no impact the earnings for the second quarter of fiscal 2010.
Total revenues for the quarter increased 5% to $5.95 billion from $5.65 billion in the same quarter last year, and topped nineteen Wall Street analysts' consensus estimate of $5.91 billion by a whisker. The revenues also grew from $5.61 billion reported in the first quarter.
Sales from company-operated restaurants grew 4% to $4.01 billion from last year, and revenues from franchised restaurants were $1.93 billion, up 8% from $1.80 billion a year ago.
Global comparable sales increased 4.8%, with all segments reporting positive results, but trailing analysts' expectations of 5%. U.S. was up 3.7%, Europe was up 5.2% and Asia/Pacific, Middle East and Africa or APMEA, was up 4.6%.
Global comparable sales grew 4.2% in the first quarter. Global comparable sales also increased 4.9% for April, and rose 4.8% for the month of May.
On a segmental basis, U.S. operating income for the second quarter rose 7% as the beverage line-up, featuring the popular new Frappes and value-based beverages, as well as classic core menu favorites and the everyday affordability of the Dollar Menu drove sales.
McDonald's Europe delivered strong comparable sales for the quarter, and reported a 9% increase in operating income, or 14% increase in constant currencies, led by growth in the U.K., France and Russia.
APMEA gained a 19% growth in operating income, or 9% growth in constant currencies, fueled by strong results in Australia, China.
Operating income for the quarter grew 10% to $1.85 billion from $1.68 billion in the prior-year quarter. Total operating costs and expenses were $4.10 billion, up 3% from $3.97 billion in the year-ago quarter.
On Thursday, McDonald's also declared a quarterly cash dividend of $0.55 per share of common stock, payable on September 16, to shareholders of record at the close of business on September 1, 2010. The company said it has returned $1.6 billion to shareholders through share repurchases and dividends during the quarter.
McDonald's performance has recently been helped by its compelling food and beverage value offerings, like the addition of Frappes to the McCafe line-up as well as the popularity of the Shrek-themed Chicken McNugget and Happy Meal promotions to motivate kids to eat more fruits, vegetables and dairy products. The company also launched a line of all-fruit smoothies earlier this month.
Meanwhile, the company has had its share of controversies during the second quarter, with the voluntary recall of about 12 million drinking glasses featuring characters from the "Shrek" movie series as the designs on the glasses contain the toxic metal cadmium, which can pose health risks.
The consumer advocacy group, Center for Science in the Public Interest or CSPI, also issued a notice to McDonald's for using toys to promote its popular Happy Meals, stating that it would sue the fast-food chain if it continues the promotion. McDonald's spokesman Walt Riker says the company has been working since 2003 to make its menu more appealing to health-conscious consumers, and called the CSPI's complaints "unprofessional" and "destructive."
"I am pleased with our second quarter performance and confident in our ability to continue to deliver solid results. As we begin the third quarter, our momentum continues with July global comparable sales trending in-line with or better than second quarter sales," Skinner concluded.
In Friday's regular trading session, MCD is currently trading at $69.55, down $1.85 or 2.59% on a volume of 4.04 million shares. In the past 52-week period, the stock has been trading in a range of $53.88 to $71.84.
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