Home / Companies / McDonald’s profit beats, coffee perks up US sales

New York: McDonald’s Corp reported a better-than-expected quarterly profit as its coffee business boosted US sales, and the hamburger chain said its global sales momentum was continuing into April.

The world’s largest fast-food chain said worldwide sales at established restaurants rose 4.2% for the quarter, which ended 31 March, and 5.2% in the month of March.

In the United States, where same-store sales rose 1.5% during the quarter and 4.2% in March, McDonald’s results got a boost from its McCafe coffees and other beverages.

The fast food chain encroached further into Starbucks Corp territory this quarter by introducing lower-priced frappes designed to compete with Frappuccinos.

McDonald’s has had success with its foray into coffee despite early complaints about the cost to franchisees, who were squeezed by the economic downturn.

McDonald’s Chief Executive Jim Skinner said in a statement that so far, same-store sales in April were “trending at least as strong as first-quarter sales."

McDonald’s first-quarter profit was $1.09 billion, or $1.00 per share, up from $979.5 million, or 87 cents a share, a year earlier.

Excluding a tax charge related to restaurant closings in Japan, McDonald’s earned $1.03 a share. On that basis, analysts’ average forecast had called for a profit of 96 cents per share, according to Thomson Reuters.

The chief executive of rival chain Burger King told Reuters on Wednesday that US consumer spending is on the rise, though high unemployment could curb sales increases. Burger King will report results on Thursday.

Shares in McDonald’s rose 0.2% to $70.45. Burger King slipped 1% and coffee chain Starbucks, which is due to report results later in the day, fell 0.6%.

Taking on Starbucks

Morningstar analyst R.J. Hottovy expects McDonald’s’ higher-margin coffee business to keep growing, saying “the coffee market is large enough to support two major players, or more."

“We saw consumers come out of hiding in March," said Hottovy, who expects the chain’s overseas growth to remain robust because their menus overseas successfully cater to local tastes.

Last month, Starbucks said it was ready to resume its restaurant expansion in the United States.

McDonald’s’ gross margins got a lift from the coffee sales and company-operated restaurant expenses that rose more slowly than revenues, sending its operating margins up 2.2% points to 29.8% of sales.

Sales at US restaurants open at least 13 months rose 4.2% in March, while same-store sales in Europe rose 5.9% and the Asia-Pacific, Middle East and Africa region reported a rise of 2.8%.

Revenue, which includes sales from company-owned restaurants plus royalties from franchisees and other fees, rose 10.5% to $5.61 billion, above analysts’ forecasts of $5.52 billion.

Revenue gains of 13% at its franchised restaurants, which account for 81.2% of its stores, outpaced the 9% increase in revenues at McDonald’s-owned restaurants.

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