McDonald's Q3 net income up 9% year-over-year to US$1.51B as revenue increases 14% to US$7.17B, offsetting higher effective tax rate, rising labor costs in Europe, other markets
October 21, 2011
– McDonald's Corp. on Friday said its third-quarter net income rose by 9 percent to $1.51 billion, its ninth straight quarter of earnings gains. The fast food giant's results, which beat Wall Street estimates, were boosted by a 14 percent increase in revenue that offset some higher expenses the chain is facing, including a higher effective tax rate and rising labor costs in Europe and other markets.
Investors rewarded the news, sending shares up more than 3 percent to $91.96.
McDonald's has performed well throughout the recession and its aftermath, partly because the chain has managed to reshape its image from a burger-and-fries joint into a hip, healthy place to eat. The world's largest burger chain, which other fast-food companies often copy, has introduced new menu items like smoothies and oatmeal, remodeled restaurants, and converted more locations to 24-hour operations.
Jim Skinner, McDonald's CEO, said in a statement that the third-quarter results are "a clear indication that our strategy is working."
McDonald's success also comes from efforts to focus on growing emerging markets as the U.S. economy struggles. In China, McDonald's increased its restaurant locations from about 1,200 to 1,400 over the year. And Europe now accounts for the biggest portion of McDonald's revenue, slightly more than 40 percent.
McDonald's revenue in the U.S. rose 5 percent, respectable compared to the performance of many rivals but slow compared to its own performance in other regions. Revenue in Europe climbed 16 percent, and revenue in Asia/Pacific, the Middle East and Africa climbed 20 percent. However, those gains also benefited from the impact of foreign currencies: When the dollar is weak, money made in other countries translates into more dollars in the U.S.
Overall revenue rose to $7.17 billion, beating the $7.02 billion expected by analysts polled by FactSet. Revenue at stores open at least 13 months rose 5 percent. That's a key measure of a company's health because it excludes the impact of recently opened or closed locations. Per-share earnings were $1.45, beating analysts' expectations of $1.43.
The revenue figures are a snapshot of money spent on food at both company-owned and franchised restaurants. They do not reflect McDonald's corporate revenue, which consists of revenue at company-owned stores plus fees and rents paid by franchisees.
Per-share earnings were $1.45, beating analysts' expectations of $1.43.
Analysts will be trying to figure out how long McDonald's momentum will last. Like many companies, McDonald's has raised prices on customers this year to deal with the higher costs for ingredients like beef and materials like fuel. But it has to be careful to not raise prices too much and risk driving away its budget-conscious customers.
Additionally, McDonald's some franchisees are upset over the costs they have to pay for remodeling. Many of the chain's expenses are on the rise as well.
McDonald's effective tax rate rose to 33.4 percent, up from 29.7 percent, because of some lower foreign tax credits. Higher labor costs in Europe and the region that covers Asia, the Middle East and Africa crimped profit margins at company-operated stores there. So did costs related to the new store openings in China.
McDonald's said it expects interest expenses to increase 8 to 10 percent for 2011. It expects food costs to increase 4.5 to 5 percent in the U.S. and Europe for the year. For the past two quarters it had predicted a slightly lower increase, 4 to 4.5 percent.
© 2021 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.