Thursday January 24 5:50 PM ET
McDonald's Net Falls 40 Percent
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Market@Midday: Greenspan and decent earnings lead markets higher - (ON24)
By Deborah Cohen
CHICAGO (Reuters) - McDonald's Corp. (NYSE:MCD - news) said on Thursday fourth-quarter net income fell 40 percent, its fifth straight quarterly decline, as the fast-food giant took charges for U.S. restructuring while declining sales in Asia and Latin America offset some recovery in Europe.
Lower 2001 profits capped what Chief Executive Jack Greenberg has deemed the ``most challenging year'' in the company's half-century history. McDonald's saw its profits strained by mad cow disease and volatile foreign economies, and faced a series of management shake-ups, a federal investigation surrounding one of its popular sweepstakes, and lawsuits alleging false claims on its signature french fries.
Net earnings at the world's largest restaurant company fell to $271.9 million, or 21 cents a share, from $452.0 million, or 34 cents, a year earlier. Before charges, the company said its per-share earnings were flat at 34 cents, in line with Wall Street expectations. Full-year net earnings fell 17 percent to $1.64 billion, or $1.25 a share, from $1.98 billion, or $1.46, in 2000.
Systemwide sales, which include those of company-operated and franchised stores, rose 2 percent in the quarter to $10.11 billion from $9.92 billion a year earlier, helped by new store openings. Income from operations fell 38 percent to $482.7 million from $774.0 million.
Shares of McDonald's slipped 93 cents to close at $26.47 in New York Stock Exchange (news - web sites) trade on Thursday.
``They need to start showing some fundamental improvements in the business -- in same-store sales and margins,'' said Andrew Barish, a Banc of America Securities restaurant analyst, who rates McDonald's shares ``market perform.''
``At this point, the worst of the bad news is probably behind the company, but there's still not a huge amount of visibility on significant operating improvement,'' he said.
McDonald's, which leads the fast-food market ahead of KFC chicken chain parent Tricon Global Restaurants Inc. (NYSE:YUM - news) and Burger King Corp. (DGE.L), operates more than 30,000 restaurants worldwide.
In the quarter, the company's long-troubled European market posted steady improvement, offset by weakness in Asia, where Japan saw the recent discovery of mad cow disease hurt consumer demand for burgers.
In a statement, CEO Greenberg said the company was heading into the new year with a ``sense of optimism, purpose and confidence in our strategies,'' and he restated the company's earlier 2002 projections for earnings of $1.47 to $1.54 a share before currency effects. RESTRUCTURING THE U.S. MARKET
McDonald's U.S. sales rose 3 percent in the fourth quarter to $4.98 billion, while same-store sales, or those at restaurants open at least one year, were ``slightly positive.''
The company took a fourth-quarter after-tax charge of $136.1 million to reshape U.S. operations, shrinking its divisions and trimming 500 to 700 corporate jobs in an effort to boost flagging service and jump-start sales.
Earlier this week McDonald's said that Alan Feldman, who oversaw the Americas business, had resigned, and it elevated long-time executive Jim Skinner to a new post overseeing all of the company's operating regions.
The restructuring moves, designed to create operational accountability, include starting extensive reviews of McDonald's U.S. restaurants in the second quarter, and linking executive and franchisee bonuses to service improvements, executives said during a conference call.
McDonald's is also continuing to roll out so-called value menus in certain U.S. regions, with its latest test in Southern California, where regular menu items will be discounted to help drive up traffic.
In Europe, sales rose 10 percent to $2.4 billion, as the critical markets of France, Germany and Britain all posted positive quarterly same-store sales.
Asia/Pacific sales dropped 10 percent in the quarter to $1.58 billion from $1.75 billion. Latin American sales, hurt by weak economies such as Argentina, fell 12 percent to $414.8 million from $470.2 million. The company has been scaling back openings of new restaurants in the region to stem profit shortfalls.
In addition to restructuring costs, the company had a fourth-quarter write-off of $30.6 million after tax for the sale of its Aroma Cafe coffee houses, and costs associated with fraud connected to a Monopoly game promotion last year. The company also charged off $4.8 million after tax for the closing of nine restaurants.
McDonald's expects to take a first-quarter charge of $20 million for the improvement of equipment in its stores. One executive said McDonald's expects the first quarter to be ``a little more challenging'' than the rest of 2002.
McDonald's shares have lost 11 percent of their value in the past 12 months, but have outpaced the broad Standard & Poor's 500 Index by 7.5 percent.
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