McDonald's Corp., which has thrived in recent years by emphasizing affordability and rolling out popular new menu items, is starting to show signs of tear from the volatile global economy.
The world's biggest hamburger chain said Monday that its net income fell 4 percent in the second quarter as a result of a strong dollar and budget-conscious consumers in economically hard-hit regions world. Suggesting more challenges ahead, the Oak Brook, Ill.-based company also said a key sales figure slowed in July.
For the three months ended June 30, McDonald's said global sales at restaurants open at least a year rose 3.7 percent, with gains in every region of the world. Analysts say the slower growth could be the result of the stiffer competition McDonald's is facing at home and abroad. Like other U.S. companies, McDonald's is also being squeezed by unfavorable currency exchange rates.
When the U.S. dollar is rising against the other world currencies, companies that do business internationally take a hit when converting local currencies back into the dollar. Analysts also worry that fast food chains will be hit with rising costs for ingredients in the coming months as a result of a severe Midwestern drought that has pushed corn prices to record levels.
CEO Don Thompson, who took the helm this month after Jim Skinner retired, said distinct menu offerings and investments in renovating restaurants should nevertheless help it continue to attract customers.
In the U.S., McDonald's said sales at restaurants open at least a year rose 3.6 percent in the quarter, with new specialty drinks contributing to growth. The figure is a key metric because it strips out the impact of newly opened and closed locations.
In Europe, where McDonald's does 40 percent of its business, the company said the figure rose 3.8 percent. In the region that includes Asia Pacific, the Middle East and Africa, the figure rose 0.9 percent as results from Australia and China offset weakness in Japan.
For the quarter, McDonald's says it earned $1.35 billion, or $1.32 per share. That's down from $1.4 billion, or $1.35 per share, in the year-ago period. McDonald's said unfavorable currency exchange rates hit its results by 7 cents per share.
Total revenue for the quarter was $6.92 billion, up slightly from $6.91 billion a year ago. When stripping out the impact of exchange rates, the company said revenue rose 5 percent.
Analysts polled by FactSet on average expected $1.38 per share on revenue of $6.94 billion.
Shares of McDonald's, which has 33,000 locations around the world, were down $1.73, or almost 2 percent, at $89.85 in morning trading Monday.
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