010449 Beef Scare Hurts McDonald's Profits

Chicago - McDonald's Corp.'s first-quarter profits tumbled 16%, hurt by some weaker economies and by beef fears in Europe that cut into sales in the burger giant's prime international region.

A 6% decline in European sales contributed significantly to a second straight quarter of lower profits for the world's largest restaurant company, which met Wall Street's recently lowered expectations.

McDonald's earned $378.3 million, or 29 cents a share for the quarter, down from $450.9 million, or 33 cents a share, in the first quarter of 2000.

Analysts polled by Thomson Financial/First Call had lowered their consensus estimate to 29 cents after the company warned last month about the worse-than- expected impact from beef concerns in Europe, particularly in Germany, Italy, Spain, Portugal and Greece.

McDonald's officials said improvements late in the quarter signal they may be over the worst of the slump, most notably a mad-cow and foot-and-mouth disease scare in Europe.

“We're seeing beef come back” in Europe, McDonald's president James Cantalupo said in a conference call with analysts. He cited as particularly encouraging a sales comeback in France, where the beef woes first surfaced in October.

Wall Street was not convinced. McDonald's shares fell 2 cents to close at $27.47 on the New York Stock Exchange, not far off the three-year low $24.75 reached last month.

Revenues increased by 5% to $3.51 billion from $3.34 billion as the Oak Brook, Ill.-based fast-food company continued to add an average of five restaurants a day to its total of more than 28,000 worldwide.

Sales rose 4% in the United States, where nearly half its restaurants are located. In Europe, which accounts for about a quarter of sales, worries about beef plus a weaker euro and pound made the region McDonald's weakest in the quarter. Sales also declined by 5% in Asia, due largely to currency changes and economic concerns.

“They were strong in the U.S., which was nice,” said analyst Ann Gurkin of Davenport and Co. “But outside the U.S. it's weak everywhere I could find. Currency is hurting them,” besides Europeans' lingering wariness of beef, she said.

Jack Greenberg, chairman and chief executive officer, said he was pleased with the company's performance considering the consumer and economic concerns along with difficult year-to-year comparisons because of big marketing promotions in 2000. He said he is optimistic that beef concerns will continue to lessen as the year goes on.

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