McDonald's net income rises 15 pct on strong sales

Friday, July 22, 2011, Vol. 35, No. 29

OAK BROOK, Illinois (AP) — McDonald's net income rose 15 percent in the second quarter, as it continued to bring in more customers, especially in Europe.

McDonald's Corp. has fared well throughout the recession and its aftermath, as customers flocked there for low-cost meals. McDonald's has also been nimble in reshaping itself to compete with higher-end rivals. In recent years, it has introduced healthier food, fancy coffee drinks, and wireless access at remodeled restaurants.

Net income of $1.4 billion, or $1.35 per share, was up from $1.2 billion, or $1.13 per share, in last year's second quarter. Analysts polled by FactSet expected earnings of $1.28 per share.

Revenue rose 16 percent to $6.9 billion, topping analysts' estimates of $6.6 billion.

CEO Jim Skinner said in a statement Friday that the results reflect McDonald's affordability and its "relevant" menu.

Like many companies, McDonald's is investing in emerging markets and seeing strong growth there. What sets McDonald's apart is that it is still making strides in the U.S.

Revenue at stores open at least 13 months was strongest in Europe, where it rose 5.9 percent. It rose 4.5 percent in the U.S. and 5.2 percent in Asia, the Middle East, and Africa.

Those figures are a snapshot of money spent on food at both company-owned and franchised restaurants and franchises. They do not reflect McDonald's corporate revenue, which consists of revenue at company-owned stores plus fees and rents paid by franchisees.

Janney Capital Markets analyst Mark Kalinowski said he expects McDonald's to continue to gain market share in all three of those regions.

Skinner will speak to analysts Friday morning, and he will likely hear questions about how rising commodity costs are affecting the world's largest burger chain. Costs for materials that McDonald's needs to make and transport its products, such as beef, corn and fuel, are down from highs this spring but still up from a year ago.

McDonald's said it expects costs for most of its ingredients to rise 4 to 4.5 percent in the U.S. and Europe this year. That's the same prediction it made three months ago, implying costs may have stabilized.

However, other costs may continue to rise. The company said it expects an income tax rate of 31 to 32 percent for the year, up from the 29.3 percent effective tax rate it paid last year. McDonald's also said it expects interest expenses to rise 8 to 10 percent in 2011, based on current rates.