000769 McDonald's Profits Rise 2%July 31, 2000Chicago, IL - McDonald's Corp. reported a “disappointing” profit gain of 2%, blaming foreign currency declines, unusually hot weather in Europe and even the European soccer championships for its worst quarterly showing since 1997. The world's largest restaurant company called the quarter an anomaly and said the outlook for the rest of the year is much brighter. The report still matched Wall Street's low expectations for the quarter. McDonald's stock, hovering near a 52-week low, rose 81.3 cents to close at $31.313 a share Tuesday on the New York Stock Exchange. Net income for the quarter was $525.9 million, or 39 cents per share, up from $518.1 million, or 37 cents per share, in the second quarter of 1999. Per- share earnings matched the estimate by a consensus of analysts surveyed by First Call/Thomson Financial. Sales systemwide, which includes franchised restaurants, increased by 3% to $10.24 billion from $9.92 billion a year ago. The last time the Oak Brook, Ill.-based fast-food giant had such a lackluster quarter, not counting special charges, was in the final three months of 1997 when the profit gain was minuscule. McDonald's said results in both Europe and the United States, which comprise about 70% of sales, faced tough comparisons to the year-earlier quarter because of hugely successful promotions in 1999. In addition, the euro, British pound and Australian dollar fared poorly against the dollar, hurting profits. Officials said sales in Europe were hurt by unusually hot weather in May and high television viewership of the European soccer championships, which kept many regular customers home at night in front of the TV. U.S. sales were flat, in part because the promotion of Teenie Beanie Babies in Happy Meals wasn't as popular this year as last. “Our business is bouncing back from this quarter, which we feel was an anomaly,” Jack Greenberg, chairman and chief executive officer, said from Brazil in a conference call with analysts. “Our fundamentals remain solid. ... We are confident that we will regain stronger sales momentum in the second half.” Per-share earnings would have been worse if not for McDonald's aggressive share buyback program. Deeming the stock undervalued - it is languishing far off the 52-week high of $49.5625 - the company bought back $700 million, or 19.1 million shares, of its stock in the second quarter. Ann Gurkin, an analyst for Davenport and Co., said McDonald's operating profit and revenue for the quarter both were lower than anticipated. “I'm a little bit disappointed that they made the earnings number only because of the share repurchase,” the analyst said. “But the sales numbers look solid.” For the first six months of 2000, McDonald's net earnings were $976.8 million, or 71 cents a share, up 6% from $920.8 million, or 65 cents a share, for the same period of 1999. Sales were $19.74 billion, up 5% from $18.74 billion. The company has opened 546 new restaurants in 2000, mostly abroad, and said it remains on track to reach its goal of opening 1,800 to 1,900 this year. McDonald's is adding new products at a rapid pace and also is branching out, recently completing its acquisition of Boston Market restaurants. It also just unveiled a new advertising campaign, “We Love to See You Smile,” highlighting the completion of its Made For You computerized system that reduced cooking times.
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