McDonald's Revenue Falls as Company Sells Restaurants to Franchisees

By Heather Haddon 

McDonald's Corp.'s revenue fell as the fast-food giant sold company-owned stores to franchisees and operating income decreased as it restructured its operations.

Revenue for the quarter totaled $5.35 billion, down from $6.05 billion a year earlier, but above the $5.32 billion analysts expected. Operating income also decreased as a result of the restructuring. Shares fell slightly in pre-market trading to $158.

McDonald's has been eliminating layers of management to trim costs and become more nimble. The plan involves providing more support for franchisees, helping them manage expenses and figuring out ways to boost sales. Previously, franchisees they were graded by metrics such as restaurant cleanliness and service.

The Oakbrook, Ill.-based company said selling restaurants to its franchisees hurt revenue, which fell 12% in the quarter. McDonald's said it recorded a pretax charge of $92 million in the second quarter because of employee severance costs and other costs associated with closing field offices.

Still, McDonald's reported net income of $1.5 billion, or $1.90 a share including charges related to the restructuring, up from $1.4 billion, or $1.70 a share, a year earlier. Analysts were expecting earnings per share of $1.92.

Same-store sales grew 4% globally and 2.6% in the U.S. during the quarter. U.S. sales missed analyst expectations of 3% growth, and were partially driven by price increases, the company said. McDonald's said last quarter that rising commodity costs around the globe were pressuring the company to raise prices.

A new challenge for the company is finding a new supplier for its salads for some 3,000 restaurants mostly in the Midwest, where federal and state health officials are investigating a cyclospora outbreak tied to McDonald's. The chain has pulled all of its salads from those restaurants.

Competition at breakfast, which represents approximately 25% of McDonald's sales, has also been a challenge for McDonald's. The chain said in the first quarter that sales were hurt by competitors' cheap breakfast offers. McDonald's in March began offering two breakfast sandwiches for $4.

McDonald's said Thursday it gave $2.5 billion to shareholders through share repurchases and dividends. The federal tax law changes have given companies new sources of cash to boost its stock through share repurchases.

--Julie Jargon contributed to this article.

Write to Heather Haddon at [e-mail]

(END) Dow Jones Newswires

July 26, 2018 09:45 ET (13:45 GMT)

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