McDonald's sales up, more strategic moves ahead
( 2003-11-08 11:33) (Agencies)
McDonald's Corp. said on Friday October sales surged more than expected and it would make key decisions about the future of its non-burger chains and struggling Japanese joint venture by year's end.
Shares in the world's largest fast-food company jumped to their highest level in more than a year on signs that turnaround measures have taken hold and on management's signal that it would not stand still in the face of remaining weakness in the company's operations.
The stock closed 3 cents higher at $26.01 in Friday trading on the New York Stock Exchange, easing from an earlier high of $26.60.
"It's telegraphing something," said Matthew DiFrisco, an analyst with Harris Nesbitt Gerard. "The fact that they sent out a signal that something's going to happen is positive."
Sales in the United States, McDonald's largest region, rose 15.1 percent in October, outpacing analysts' published expectations for a mid- to high-single-digit gain in their best performance in more than five years.
"US store sales were very strong," said Banc of America Securities analyst Andrew Barish. "Clearly the company is doing a lot of the right things."
He added that the improved US economy is also contributing to a "cyclical rebound" for fast-food companies. Earlier this week, McDonald's smaller rival Wendy's International Inc. posted its best sales in months.
McDonald's European same-store sales turned positive, rising 2.1 percent as three major markets -- France, Germany and Britain -- all posted higher results in the month. Europe's increase, which also beat forecasts, came on the heels of a September decline of 0.9 percent.
Worldwide same-store sales rose 8.4 percent.
In the United States, where some 40 percent of the company's 30,000 hamburger stores are located, McDonald's benefited from extended hours of operation, new menu items such as meal-sized salads, and promotions like its Monopoly game.
'ADDITIONAL ACTIONS' TO COME
"During the fourth quarter, we will take additional actions to revitalize the business," Chief Executive Jim Cantalupo said in a statement. "These will include making decisions related to our (non-hamburger) brands and implementing the recently announced plans for revitalizing our business in Japan."
Those actions will result in fourth-quarter charges, he said.
McDonald's non-hamburger brands, which include the Chipotle Mexican Grill, Donatos Pizza and Boston Market chains, were believed to have been up for sale this year.
Those chains had revenue of $839.5 million in the nine months ended Sept. 30 but posted an operating loss of $23.4 million, compared with McDonald's total operating profit of $2.46 billion.
The Japanese joint venture, which has been struggling for several years, said on Friday that slumping sales and restructuring costs would push its results into the red for the second straight year.
One analyst suggested that McDonald's is not likely to pump more money into money-losing operations.
Cantalupo "is looking at the portfolio more from a 'return on invested capital' standpoint," said Amy Kaser, an analyst with Loomis Sayles, which owned 1.45 million shares through June.
In management changes announced earlier in the week, Oak Brook, Illinois-based McDonald's said Mats Lederhausen, an executive who headed its strategy division, would now focus solely on the non-hamburger brands. McDonald's also gave Vice Chairman Jim Skinner oversight of Japan, a major market with nearly 3,900 stores.
Combined same-store sales in the Asia, Middle East and Africa region were off 0.3 percent in the month, better than analysts' forecasts for a decline of as much as 5 percent.
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