001203 Mad Cow Could Dampen Mcdonald's Europe Sales

Chicago - McDonald's Corp.'s European business is likely to see its near- term sales dampened by a public pullback from beef after a recent outbreak of mad cow disease, analysts said.

Concern is now focused on France, where accounts of the disease known as bovine spongiform encephalopathy have more than tripled this year. Those accounts followed initial cases discovered in Germany and Spain last week.

“I certainly think the greatest impact is going to happen in November and December,” said Goldman Sachs analyst Brandy Shin, noting that McDonald's diverse menu will help it offset any public aversion to Big Macs and other beef products. “They have the ability to market other products, like Chicken McNuggets,” she said.

Damon Brundage, a Raymond James analyst, is forecasting “flattish” November same-store sales for McDonald's in Europe, where the company does roughly one- fourth of its business. When McDonald's faced a similar crisis in Britain in the late 1980s, he said, sales dropped off for a few weeks and then bounced back.

“We don't see this as a significant issue,” he added.

McDonald's, which is reporting November sales results in mid-December, declined to discuss how the mad cow outbreak was affecting sales in its European markets, but stressed high safety standards.

“We're only using products and ingredients that fully meet the highest standard of quality and are officially approved by all relevant authorities,” said Anna Rozenich, a spokeswoman in the company's Oak Brook, Illinois headquarters. McDonald's only uses meat that can be traced back to specific animal and suppliers, she said.

Investors on Wednesay bid up McDonald's shares $1-1/4, or 4%, to close at $32-1/2 on the New York Stock Exchange Wednesday, up from a pull-back earlier this week.

McDonald's, which operated 5,243 of its total 28,454 restaurants in Europe through the third quarter, said it is continuing to monitor the situation.

It's also stepping up marketing for non-beef products in some markets and in France has begun a public awareness campaign designed to educate consumers about its product safety, Rozenich said.

Still, the European beef scare could possibly shave a penny off McDonald's fourth-quarter profits, wrote Merrill Lynch analyst Peter Oakes in a report released Wednesday.

European officials on Wednesday announced new measures designed to rebuild public faith in beef and halt the spread of the brain-wasting disorder.

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