McDonald's Reports Steeper Profit Drop--2nd Update

By Chelsey Dulaney 

McDonald's Corp. reported a 2.6% drop in a key revenue metric in the U.S. during its first quarter, as new promotions and products couldn't offset competitive pressure.

Overall, the fast-food giant reported a steeper-than-expected drop in profit amid foreign currency impacts and restructuring charges. But total revenue was in-line with Wall Street expectations, sending shares up 2.3% to $97 in premarket trading.

The results come as the company embarks on a turnaround under new Chief Executive Steve Easterbrook

Mr. Easterbrook took the helm at the fast-food giant in March and has helped instill confidence in investors--with shares up over the past three months.

Mr. Easterbrook's moves so far in the U.S. include a plan to raise wages for McDonald's restaurant workers, an effort to curb antibiotic use in its chicken, testing of all-day sales of breakfast items, and the launch of premium chicken sandwiches and sirloin burgers. The efforts, however, have drawn the ire of some of the franchisees who run the vast majority of McDonald's restaurants and question whether they can afford to implement the plans.

Mr. Easterbrook said Wednesday that he would unveil the details of his turnaround plan on May 4.

So far, the changes appear to have had little impact on sales.

In March, his first month on the job, sales at stores open at least 13 months fell 3.3%, with the U.S. down 3.9%, Europe off 2.9% and Asia, the Middle East and Africa sliding 7.3%.

Overall, for the quarter ended March 31, comparable sales fell 2.6% in the U.S. division and 2.3% globally, as traffic fell across all major segments. Consensus Metrix had forecast a declines of 2.1% and 1.8%, respectively.

Comparable sales fell 8.3% in the Asia-Pacific division, where it is struggling with perception issues after food-safety scares in China and Japan. Consensus Metrix had forecast a 6.5% decline in the region.

Looking forward, McDonald's forecast that its April comparable sales would be negative.

Overall, McDonald's reported a profit of $811.5 million, or 84 cents a share, down from $1.2 billion, or $1.21 a share, a year earlier. The results included 17 cents per share related to write-offs and restructuring and 9 cents a share related to foreign currency.

Revenue fell 11% to $5.96 billion.

Analysts polled by Thomson Reuters had expected earnings of $1.06 a share on revenue of $5.96 billion.

Write to Chelsey Dulaney at [e-mail]

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