McDonald’s profit slumps, sales fall

McDonald's on Tuesday said profit slumped in the third quarter as global sales fell amid a food-safety scandal in China and intense competition in the United States.

Net income plunged 30% in the July-September quarter from a year ago to US$1.07 billion (RM3.5 billion), the US fast-food restaurant giant said.

Earnings per share of US$1.09 were well below the Wall Street estimate of US$1.37.

McDonald's president and chief executive Don Thompson was blunt about the results: "By all measures our performance fell short of our expectations."

Thompson said the company's business and financial performance was "pressured by a variety of factors – from a higher effective tax rate, to unusual events in the operating environments in APMEA and Europe, to under-performance in the US, our largest geographic segment."

Total revenue declined 4.6% to US$6.99 billion, missing expectations of US$7.18 billion.

Operating income fell 14% to US$2.07 billion.

Global comparable sales – sales at restaurants open at least 13 months – fell 3.3% from a year ago as the home of the "Golden Arches" attracted fewer customers in all major segments and the China meat scandal hit sales in Asia.

In the crucial US market, sales also fell 3.3% amid tough competition, and operating income dropped 10% "as initiatives to address the current market dynamics did not translate into improved financial results".

McDonald's said the US segment's recently elected president, Mike Andres, was moving quickly to implement a more locally based strategy, including a simplified menu that features "locally relevant" menu options and new customizable options.

Food-quality issues discovered at a supplier in China in July cost the company 15 cents per share, it said. Comparable sales in the Asia Pacific Middle East and Africa segment dropped 9.9%, in part due to China, its third-largest market, and Japan.

Europe's comparable sales fell 1.4% amid US sanctions against Russia for its alleged support of pro-Russia separatists in Ukraine. Russian authorities have closed a number of McDonald's outlets for alleged sanitary violations.

"The internal factors and external headwinds have proven more formidable than expected and will continue into the fourth quarter, with global comparable sales for October expected to be negative," Thompson said.

"We understand the depth of the challenges and we are responding with the sense of urgency required to improve our performance."

Shares in Dow member McDonald's were down 1.8% at US$89.98 in pre-market trade in New York. – AFP, October 21, 2014.