McDonald’s 2Q profit falls 8 pct on strong dollar

NEW YORK — McDonald’s Corp. said Thursday that even though more consumers chowed down on its burgers, fries and drinks in the second quarter, the stronger dollar and a year-ago gain led profit to dip 8 percent.

NEW YORK — McDonald’s Corp. said Thursday that even though more consumers chowed down on its burgers, fries and drinks in the second quarter, the stronger dollar and a year-ago gain led profit to dip 8 percent. The profit dip, and lower-than-expected growth in sales at established locations in June, caused shares to fall $2.96, or 5 percent, to $55.86 in afternoon trading. Chief Operating Officer Ralph Alvarez said on a conference call with investors that June may have been a difficult month for fast-food operators because chains benefited last year from stimulus checks and a better economy. "We know we had benefit last year from the incentives checks that went out from the government," he said on the call. "And back then, you know, people weren’t in saving mode." The company did not detail its June same-store sales, or sales at stores open at least a year. But Deutsche Bank analyst Jason West said in a note to investors that it appeared same-store sales rose just 2.6 percent worldwide, below the 4.5 percent rise he was expecting. Same-store sales for the quarter rose 4.8 percent globally and 3.5 percent in the U.S. The company said its new espresso-based McCafe drinks added to sales throughout the period and helped boost market share in the U.S. The drinks are being rolled out to all 14,000 of the company’s U.S. locations — a move the company began heavily promoting in ads nationwide during the quarter. Alvarez declined to give specific sales data about the McCafe line but said its coffee business has grown from 2 percent to 5 percent of the chain’s overall sales in the past few years. He credited the McCafe line with much of that increase. Analysts have been waiting to see whether U.S. customers would be enticed to stray from their favorite specialty coffee destinations to try the McCafe drinks. Starbucks — the reigning champion in the specialty coffee arena — reported a same-store sales dip in the U.S. in its fiscal third quarter earlier this week, but that slide was less steep than in the prior quarter. On a conference call with investors, Starbucks CEO Howard Schultz said heavy advertising and the launch of more specialty drinks at lower-cost competitors like McDonald’s has brought more people into the category. The Oak Brook, Ill.-based fast-food chain said net income fell to $1.09 billion, or 98 cents per share, from $1.19 billion, or $1.04 per share in last year’s quarter. Excluding a 10-cent-per-share gain a year ago from the sale of McDonald’s minority interest in Pret A Manger, the company earned 94 cents per share in the 2008 quarter. Analysts polled by Thomson Reuters expected profit of 97 cents per share. Analysts typically exclude special items. Overall revenue fell 7 percent to $5.65 billion because of the effect of translating foreign currency into dollars. Analysts predicted revenue of $5.72 billion. The company said earlier this year it expected both second and third quarter profit to take an 11-cent-per-share hit from exchange rates. Most U.S. companies that sell goods internationally convert those sales from foreign currencies into dollars when they report their financial results. If the dollar is stronger than those currencies, the translation results in fewer dollars in revenue. Chief Financial Officer Pete Bensen said the company now expects currency rates to hurt third quarter profit by 6 cents per share and help fourth-quarter profit by 2 cents per share. Although the company did not offer any guidance for the next quarter or the full year, Alvarez said same-store sales so far in July are similar to or better than same-store sales in June. ______ In photo: A cheeseburger and fries meal from a McDonald’s restaurant is seen in San Jose, Calif., Wednesday, July 22, 2009. McDonald’s said Thursday, its second-quarter profit dipped 8 percent because of the stronger dollar and a gain that boosted results a year ago. (AP Photo/Marcio Jose Sanchez) Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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