Poor Q2 prompts possible closures at McDonalds - Company Financial Information - Brief Article

Eurofood, August 2, 2001

US fastfood giant McDonalds is facing up to a 16% decline in its second quarter profits. The fastfood giant has felt the effects of the BSE scare in Europe, along with adverse currency conditions.

Net income for the second quarter fell from US$526m (602m [European Dollar]), to US$441m. Sales were flat at both its own restaurants and its franchised outlets, reaching US$10.2bn.

McDonalds system wide sales H1 and Q2 (US$m)

                   2001      2000   % /-
H1
US              9 865.1   9 697.5      2
Europe          4 449.4   4 632.5    (4)
Asia/Pacific    3 322.7   3 481.9    (5)
Latin America    887.0     863.6       3
Other           1 364.3   1 068.8     28

Q2
US              5 188.6   5 192.5      -
Europe          2 271.2   2 326.8    (2)
Asia/Pacific    1 635.2   1 696.3    (4)
Latin America    431.7     429.5       1
Other            10 238    10 237      -

Source: McDonalds

With animal diseases in Europe, such as the recent foot-and-mouth crisis, coupled with fears over BSE, consumer confidence over meats, in particular beef has been dented. European sales at McDonalds' restaurants were hit by this. Overall sales in Europe were down 2% in the quarter, with operating income down 11%.

However, sales have been steadily getting better in recent months in Europe, and Jack Greenberg, chairman and chief executive officer of the fastfood conglomerate said, "We are hopeful the worst is behind us and Europe's results will continue to improve."

Also affecting the giant's performance is the adverse currency conditions for US companies. The strong dollar has hampered already flagging sales in Europe. Matthew Paul, chief financial officer at McDonalds is anticipating flat earnings for the full-year, in constant currency terms.

POSSIBLE CLOSURES

On top of this, McDonalds may also take some charges during the second half of the year, relating to any possible stores closures. Upon release of its disappointing figures, the US concern said as many as 250 stores around the globe may close. Some good news came from the Initial Public Offering (IPO) in Japan, which took place recently. McDonalds expects to raise some US$130m.