McDonald’s Earnings Decline in Fourth Quarter

McDonald’s posted declines in fourth-quarter sales and profit Friday, capping off what it called a “challenging year” as issues around the world from diners’ changing preferences to food-safety concerns took a bite out of its results.

The restaurant giant’s sales and profits missed Wall Street’s forecasts in every quarter of 2014.

The fourth quarter “was ugly, no other way to word it,” said Edward Jones analyst Jack Russo.

McDonald’s, based in the Chicago suburb of Oak Brook, Ill., recently started a major new advertising and brand campaign to try to win back diners in the United States who are instead heading to chains such as Chipotle and Starbucks.

“Our business continues to face meaningful headwinds,” CEO Don Thompson said in a statement.

The company is busy trying to improve results at its existing restaurants while reducing risks and costs of expansion. McDonald’s plans to open fewer restaurants in its “most challenged markets,” CFO Pete Bensen said in a statement.

One bright spot in the report: Sales at restaurants open at least 13 months, or same-store sales, showed some resilience.

U.S. same-store sales rose 0.4 percent in December, the market’s first positive showing since September 2013. Total December same-store sales fell 0.1 percent, the company’s best global performance since May 2014.

Still, McDonald’s expects same-store sales to decline in January. Results should still be under pressure, particularly in the first half of 2015, Thompson said.

The January sales forecast is “disappointing, especially given lower gas prices and a warmer winter versus last year,” Russo said. The company appears to be “getting more aggressive with its turnaround plan,” but he also suggested it could take some time, “so investors will need patience here.”

McDonald’s shares fell 3.4 percent in 2014.

For 2015, the company set a capital expenditure budget of about $2 billion, its lowest in more than five years.

About half of those funds will be used to open new restaurants. McDonald’s plans to add 600 to 700 restaurants this year, down from 829 in 2014. Many of the new restaurants will be in licensee markets where it does not foot the bill for construction.

McDonald’s earned $1.1 billion, or $1.13 per share, in the fourth quarter, down from $1.4 billion, or $1.40 per share, a year earlier. Total revenue fell 7.3 percent to $6.57 billion.

Analysts, on average, expected McDonald’s to earn $1.22 per share on $6.69 billion in revenue.

Fourth-quarter same-store sales fell 0.9 percent, as visits to restaurants fell in all of the company’s major markets. U.S. same-store sales declined 1.7 percent.

Analysts, on average, expected McDonald’s fourth-quarter same-store sales to fall 1.5 percent, with a 2.1 percent decline in the United States, according to Consensus Metrix.

In July, food-safety issues were uncovered at Shanghai Husi, a supplier to McDonald’s and other restaurant companies in China. McDonald’s is still dealing with the impact of the issue, which has cut into sales and profit in China, Japan and certain other markets. For the fourth quarter, same-store sales in the company’s Asia/Pacific, Middle East and Africa region fell 4.8 percent, while the division’s operating income plunged 44 percent.

This article appeared in print in the January 26th, 2015 edition of Hamodia.