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McD posts strong results despite weak economy

OAK BROOK Ill. Reiterating that McDonald's continues to be recession-resistant because of its lower prices, executives at the world's largest quick-service hamburger chain reported on Wednesday an 11-percent jump in third-quarter net income, aided by its largest quarterly U.S. sales increase so far this year.

For the quarter ended Sept. 30, corporate net income rose to $1.19 billion, or $1.05 per share, compared with year-ago earnings of $1.07 billion, or 89 cents a share. The results beat the average analyst expectation for earnings of 98 cents a share.

Revenue rose 6 percent to $6.27 billion, McDonald's reported.


While overseas markets drove positive worldwide same-store sales growth of 7.1 percent for the quarter, led by Europe with an increase of 8.2 percent and the Asia/Pacific, Middle East and Africa region with a jump of 7.8 percent, same-store sales in the United States rose 4.7 percent from a year ago. The highest quarterly sales increase so far this year for McDonald’s domestic market, which contributes about 45 percent of operating income, helped boost operating income by 9 percent from a year ago, the company reported. Systemwide sales for McDonald’s U.S. system, including sales from franchised units, rose 7 percent to $6.60 billion, according to corporate documents.

Jim Skinner, McDonald’s chief executive, credited the chain’s proper positioning in today’s hectic lifestyle, during a call with investors. He also pointed to McDonald’s relevant food and beverage offerings, its value pricing and what he called unparalleled convenience for the quarter’s results. He specifically mentioned the chain’s newer chicken sandwiches, breakfast and beverage platforms, especially coffee, as successes.

Skinner, along with president and chief operating officer, Ralph Alvarez, reiterated McDonald’s commitment to the Dollar Menu, saying it accounts for between 13 percent and 14 percent of total sales. The menu’s low prices and high cost because of today’s inflated food prices, have led the company and its U.S. franchisees to discuss possible changes to increase profitability.

“We expect to have a decision soon,” Skinner said. It has been suggested that the popular Double Cheeseburger would be one of the Dollar Menu items to be re-evaluated, perhaps with less cheese or smaller patties.

McDonald’s introduction of specialty coffee and other beverages, an initiative dubbed McCafe, is on track to roll out to all U.S. units by the middle of next year, Alvarez said. About 3,800 units currently offer the beverages, and most of the remaining 10,200 units are in early stages of construction, which involves redesigning drive-thrus and installing new equipment, he said. Alvarez said that franchisees have been able to secure financing for these improvements, which are costing an average of $100,000 per unit.

Skinner was asked during the conference call about expected effects on McDonald’s business if a Democratic president and Democratic-dominated Congress should come to power. He said McDonald’s “has been around for 52 years under every administration,” and that he was not concerned. He also said he is not concerned about Democratic-led attempts to push through the “Employee Free Choice Act” that could make it easier for labor unions to recruit members.

“I’m not sure our younger workers want to spend their discretionary income on union dues,” he said.

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