McDonald's Results Disappoint, Says Headwinds Remain--2nd Update

By Chelsey Dulaney 

McDonald's Corp. on Friday posted a worse-than-expected 21% drop in earnings its December quarter, rounding out a dismal year for the fast-food chain that prompted core changes to its business.

The fast-food chain also warned that its January sales would likely be negative and its results for the first half of the year would be pressured, indicating that a turnaround isn't expected quickly.

"2014 was a challenging year for McDonald's around the world. Our results declined as unforeseen events and weak operating performance pressured results in each of our geographic segments," Chief Executive Don Thompson said in a news release. "Our business continues to face meaningful headwinds."

Still, shares gained more than 1% in premarket trading as McDonald's logged its first increase in same-store sales in the U.S. in over a year. The company also unveiled a $2 billion capital spending plan for 2015--its lowest capital budget in more than 5 years--as it seeks to shore up its balance sheet.

McDonald's has been working to rejuvenate its business in recent months after posting some of its worst monthly sales figures in more than a decade last year.

The company has been losing customers to fast-casual chains and to such rivals as Five Guys Holdings LLC and Chick-fil-A Inc. that focus on just a few menu items. McDonald's menu has become bloated in recent years as the chain has added everything from fruit smoothies to salads in a bid to appeal to a broad range of customers. The result has been slower service, which has driven away many customers.

Mr. Thompson has vowed to fix the problems, announcing plans to cull menu items and give customers the option of more customized ordering. Executives also have said the chain plans to study every ingredient in its products and to review different cooking and holding techniques to improve the quality of its food.

Overall, McDonald's reported a profit of $1.1 billion, or $1.13 a share, down from $1.4 billion, or $1.40 a share, a year earlier.

Revenue fell 7.3% to $6.57 billion.

Analysts polled by Thomson Reuters had expected earnings of $1.22 a share on revenue of $6.68 billion.

For the quarter ended Dec. 31, McDonald's said global same-store sales fell 0.9% as traffic declines across all segments.

U.S. same store sales slid 1.7% in the quarter from a year earlier, though sales ticked up 0.4% in December.

In the company's Asia-Pacific, Middle East and Africa region, sales at existing locations fell 4.8%. McDonald's performance in the region has improved somewhat after one of its meat suppliers was accused of intentionally selling expired meat to restaurants in July. The scandal shook consumer confidence and has driven down sales in recent months. McDonald's said it expects the supplier issue and currency fluctuations to bring down its fourth-quarter results.

In Europe, broader economic softness has been compounded by political complications in Russia, where authorities have been inspecting and shutting McDonald's restaurants--widely seen as retaliation for U.S. sanctions in response to Russia's military incursion in Ukraine. McDonald's sales fell 1.1% in the division, as results also were weighed by weakness in France and Germany.

Write to Chelsey Dulaney at [e-mail]

Access Investor Kit for McDonald's Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US5801351017

Subscribe to WSJ: http://online.wsj.com?mod=djnwires