McDonald's Corp., saying fears about "mad cow" disease severely damped sales in Europe, reported a rare quarterly profit decline, and its shares slipped 6%.
The fast-food concern said fourth-quarter net income fell 7% to $452 million, or 34 cents a diluted share, from $486.2 million, or 35 cents a share, for the year-earlier period. A consensus of 18 analysts' estimates from First Call/Thomson Financial called for 35 cents a share. The last time McDonald's quarterly profit dropped was in the second quarter of 1998, when the company recorded a special charge.
The brain-wasting illness, formally known as bovine spongiform encephalopathy, or BSE, was detected in cows in France and elsewhere last autumn, in large part causing European sales for the month of November to fall 11% from a year ago and 10% for the quarter. More recently, a BSE-infected cow was found at an Italian slaughterhouse run by a company that supplies beef to McDonald's outlets in Europe, although the specific slaughterhouse at which the cow was found didn't supply the chain.
In an interview, McDonald's Chief Executive Jack Greenberg said sales have largely recovered in France, but they are still suffering in Germany and other countries. Asked how long that might be the case, Mr. Greenberg responded, "It's hard to predict."
In the U.S., however, systemwide sales improved by 3%, he said. "Sales were positive. It's good news in spite of the issues we've been talking about," Mr. Greenberg added. "We feel really good about our business ... I think you'll see momentum continue."
Some analysts, however, weren't so bullish. Shares of McDonald's fell $2.06 to $30.81 as of 4 p.m. in New York Stock Exchange composite trading Wednesday.
"Bottom line is, they missed earnings and they missed it because their business is soft," said Allen Hickock, an analyst with U.S. Bancorp Piper Jaffray. Particularly amid concerns of a slowing economy, Mr. Hickock said, "I fail to see a significant catalyst that gives me confidence that they'll be able to jump-start their business near term."
Revenue climbed 6% to $3.59 billion from $3.37 billion, while systemwide sales, including restaurants operated by franchisees and affiliates, increased 2% to $9.92 billion from $9.75 billion. Excluding the impact of currency conversion, McDonald's said, profit in the quarter would have been flat.
Mr. Greenberg said the first half of 2001 could be tough for the company but that by year's end he expects per-share earnings growth to range from 10% to 13%, excluding the impact of foreign-currency conversions. The Oak Brook, Ill., concern has slowed eatery openings in Japan and says economic conditions in Latin America continue to hurt sales there.
Although the company expects the impact of foreign currencies, at current exchange rates, to lower 2001 per-share earnings by about a penny, Mr. Greenberg said that unlike in previous years, "we won't be significantly hampered by the strength of the U.S. dollar this year."
In the U.S., he said, a made-to-order cooking system rolled out last year has improved customer perceptions of McDonald's food, but the company's current "We Love to See You Smile" marketing campaign hasn't sufficiently improved the McDonald's "experience" for consumers.
In addition to operating more than 28,000 McDonald's stores world-wide, the company operates Chipotle Mexican Grill, Boston Market and Donatos Pizza restaurants. McDonald's said it plans to open 100 to 150 eateries in 2001, mostly Chipotle and Donatos outlets. About 60 Boston Market stores will be converted to McDonald's and other brands.
For the year, McDonald's net income was $1.98 billion, or $1.46 a diluted share, up 2% from $1.95 billion, or $1.39 a share, in 1999. Revenue in 2000 rose 7% to $14.24 billion from $13.26 billion the prior year; systemwide sales climbed 4% to $40.18 billion.
CHICAGO -- Europeans' wariness of beef during a mad cow disease scare combined with a weak euro to send McDonald's otherwise healthy quarterly profits lower for the first time since 1998.
Shares in McDonald's Corp. fell 6 percent on the unexpected earnings dip, and on its chief executive's warning of a ``very challenging'' quarter ahead due in part to beef fears in Europe, where McDonald's has nearly 5,500 restaurants.
Jack Greenberg acknowledged that the scare is ``having some impact in certain markets,'' primarily Germany, Spain, Italy and France, where it first surfaced in October.
The beef flap didn't stop the world's largest restaurant company from posting strong sales and earnings, but it was enough to snap its 2 1/2-year streak of increasingly higher profits.
Net earnings were $452 million, or 34 cents a share, down from $486.2 million, or 35 cents a share, a year earlier. Per-share earnings were also a penny below what analysts surveyed by First Call/Thomson Financial had estimated.
Worldwide sales rose 2 percent to $9.92 billion from $9.75 billion despite a 9 percent falloff in Europe, where the restaurant chain has been rapidly expanding. The company said that excluding the weakening of the euro and other currencies, European revenues would have been up 5 percent.
McDonald's stock slid $2.06 to $30.81 a share on the New York Stock Exchange. It had been recovering since hitting a two-year low of $26.37 in September.
The Oak Brook, Ill.-based company is likely to have seen the worst of the European beef slowdown by spring, said Damon Brundage, an analyst for Raymond James and Associates.
``Historically they have recovered from these mad cow scares pretty quickly. And they're adding other, non-beef products to mad cow-proof their menu,'' Brundage said.
McDonald's U.S. sales, where growth has been sluggish in a heavily competitive market, rose 3 percent to $4.82 billion.
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