McDonald’s Falls as Profit Trails Estimates

McDonald’s Corp. fell the most in nine months after posting second-quarter profit and revenue that trailed analysts’ estimates and saying economic weakness would hurt results for the remainder of the year.

McDonald’s slid 3 percent to $97.27 at 9:40 a.m. in New York after falling 3.2 percent for the biggest intraday drop since Oct. 19. The Oak Brook, Illinois-based company’s shares had gained 14 percent this year through July 19, while the Standard & Poor’s 500 Restaurants Index rose 17 percent.

Chief Executive Officer Donald Thompson has been trying to attract consumers with less expensive fare, such as Dollar Menu foods in the U.S. and combo meals in Europe. Sales at global stores open at least 13 months rose 1 percent in the quarter, matching the average estimate of analysts surveyed by Consensus Metrix. July same-store sales are projected to be unchanged from last year, Thompson said today in a statement.

“Based on recent sales trends, our results for the remainder of the year are expected to remain challenged,” he said.

Net income rose 3.7 percent to $1.4 billion, or $1.38 a share, from $1.35 billion, or $1.32, a year earlier, the company said. Foreign currency exchange-rate fluctuations reduced profit by 2 cents a share in the quarter. Analysts estimated $1.40 a share, the average of 27 projections compiled by Bloomberg.

Revenue rose 2.4 percent to $7.08 billion in the quarter, trailing analysts’ average estimate of $7.09 billion.

U.S. Sales

Same-store sales rose 1 percent in the U.S., lagging behind estimates for a 1.5 percent gain, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group.

McDonald’s has faced a U.S. consumer environment where unemployment has been stuck above 7.5 percent for 54 straight months. Competitors also are introducing new items — Burger King Worldwide Inc. (BKW) has smoothies and soft-serve ice cream, while Yum! Brands Inc. (YUM)’s Taco Bell is testing a $1 menu.

During the past month, McDonald’s has increased advertising for its value items to drive more customers into restaurants, Peter Saleh, a New York-based analyst at Telsey Advisory Group, said today in an interview. The consumer environment is volatile in the U.S., he said.

“There’s no good footing,” Saleh said.

Asian Sales

Comparable-store sales declined 0.1 percent in Europe and 0.3 percent in the company’s Asia Pacific, the Middle East and Africa region, during the quarter. Analysts estimated drops of 0.1 percent and 0.2 percent, respectively. Same-store sales are an indicator of a company’s growth because they include only older restaurants.

In Europe, McDonald’s is facing a cash-strapped consumer. The Big Mac seller this year has been promoting less expensive items, such as combo meals and 1 euro burgers, in Germany and France, the company’s two biggest European markets. The fast-food chain gets about one-third of its revenue from countries in its Europe segment.

McDonald’s has about 34,500 stores globally, of which 19 percent are owned by the company.