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Customer caution, new competition keep McDonald’s profits flat

/ 06:59 AM January 24, 2014

NEW YORK – US fast-food giant McDonald’s Thursday reported flat quarterly earnings and a dip in sales, warning it faces a challenging year as it beefs up its brand.

The home of the “Golden Arches” reported fourth-quarter earnings of $1.4 billion, unchanged from a year ago, with earnings per share of $1.40, a penny above analyst expectations.

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Revenues were up slightly, to $7.1 billion from $7.0 billion in the 2012 fourth quarter.

McDonald’s said the latest results reflected a decline in customer counts, but an increase in the amount spent by each customers.

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The restaurant chain faces rising competition, not only from other fast-food companies, but also from “many non-traditional market participants,” including conventional retailers and coffee shops, it said.

The company also said it must contend with “broad-based consumer caution” that has depressed the overall market for dining out.

“Given these conditions and persistent cost pressures, we expect our results for 2014 will remain challenged,” McDonald’s said in the filing.

The massive fast-food retailer, which has more than 35,000 locations in over 100 countries, said fourth-quarter global comparable sales dipped 0.1 percent. McDonald’s president and chief executive Don Thompson predicted January sales would be little changed.

Comparable sales in the October-December quarter fell 1.4 percent in the United States and 2.4 percent in the Asia/Pacific, Middle East and Africa segment.

Those declines outweighed a 1.0 percent increase in sales in Europe, bolstered by strength in Britain, France and Russia.

Earnings for the full-year 2013 were $5.6 billion on revenues of $28.1 billion, a 2.2 percent rise from 2012 profits of $5.5 billion on revenues of $27.6 billion.

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McDonald’s executives told an analyst conference call the company would redouble efforts to remain “relevant” to customers through a focus on value and better customer service and marketing.

“It’s a fight for market share,” said McDonald’s chief operating officer Tim Fenton. “It’s a street fight, and we’re getting at it.”

Fenton said the company had learned from some missteps in 2013, such as introducing too many new items at once that “overcomplicated” the menu and confused customers.

The company is also upgrading the kitchens in its restaurants to boost productivity and enable servers to add more toppings to better cater to customer wishes.

Bank of America Merrill Lynch said in a client note that the results showed better-than-expected profit margins, especially in the United States and Europe, and that a rebound in European economies could be a potential catalyst for gains in the stock.

Shares of McDonald’s, a Dow component that has underperformed the index over the last year, were up 0.4 percent to $95.28 in early-afternoon trade.

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TAGS: business Golden Arches, food, McDonalds, profits, Restaurant, revenues, US
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