Weakened Euro Hurts McDonald's Results

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Oak Brook, IL-McDonald's Corp. reported its third-quarter profits rose 1 percent, meeting expectations, as it offset the impact of weaker foreign currency with strong U.S. sales and a more favorable tax rate.

The global maker of hamburgers, french fries and other fast-food items said its net income rose to $548.5 million, or 41 cents a share, from $540.9 million, or 39 cents, in the year-earlier period.

McDonald's, which warned last month that a weakened euro could shave its full-year earnings by an additional 2 cents per share, saw its European operating income fall to $313.5 million from $324.8 million. Wall Street now expects the company to earn $1.50 per share in the year, down from an earlier view of $1.51.

Sales in the European region, McDonald's second-largest, were down slightly to $2.45 billion, from $2.46 billion.

"They took a big currency hit in Europe," said Damon Brundage, an analyst with Raymond James. "I think it's very much in line with the reduced expectations. The bad news is already in the stock."

"Obviously, the strength of the dollar has cost us significantly in terms of earnings per share," chairman and chief executive Jack Greenberg said in an interview. "This is not an economic cost to our shareholders. This is an accounting convention."

The company saw a 2-cent-per-share currency impact in the quarter, and reiterated earlier forecasts about the potential for a full-year hit of about 7 cents, CFO Mike Conley told analysts during a conference call.

McDonald's U.S. market posted strong gains as sales rose 3.7 percent to $5.1 billion from $4.9 billion last year, and operating income increased to $426.2 million from $389.6 million. Greenberg said the company is beginning to see positive effects from its new U.S. Made For You custom food preparation system, a new "We love to see you smile!" ad campaign and store improvements.

The company, which has widened its reach beyond the McDonald's brand with the purchase of the Boston Market and smaller-scale Donatos Pizza and Chipotle Mexican Grill chains, may be readying for some large U.S. initiatives, Greenberg hinted on the call.

"I think you'll see a business in the U.S. that will surprise you because of the kinds of strategic efforts underway," he said. -Reuters