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Earnings Analysis: 
McDonalds Earnings Up 27%
Author: Staff
Last Update: 10:51 PM EDT October 23 2007

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9:00PM New York - Weaker dollar and higher breakfast sales at McDonald’s lifted third quarter net earnings by 27%.

McDonald’s Corp (MCD) third quarter revenue rose 7% to $5.9 billion from $5.5 billion from a year earlier on a falling dollar, and generally stronger sales growth across major divisions.

Of the 7% growth in sales, more than half of this emanated from foreign exchange gains. Sales from company owned restaurants rose 5% to $4.27 billion while those from franchise and affiliate restaurants increased 12% to $1.62 billion from $1.11 billion a year ago.

In the quarter, net earnings climbed 27% to $1.07 billion compared with $843.3 million reported same period in 2006. McDonald’s earnings per share increased to 89 cents per share, up 31% from 68 cents per share in the comparable period last year.

International same-store sales gained 6.9%, an increase for the seven straight quarters. The growth was driven by an 11.4% sales increase in Asia-Pacific, Middle East and Africa.

During the quarter, the company said it increased cash return to shareholders target between $15 billion to $17 billion in 2007 through to 2009 and raised annual dividend by 50% to $1.50 per share.

McDonald’s spent $927 million on share buybacks in the quarter under review.

For the nine months to September 30, McDonald’s revenue gained 10% to $17.03 billion from $15.44 billion from a year ago. Revenue rose 6% excluding currency translation.

Net earnings fell 51% to $1.12 billion in the period January to September 2007 from $2.3 billion in 2006, translating into a 50% decline in earnings per share to 92 cents from $1.83 previously.

In August 2007 the company sold its investment in Boston Market and in the third quarter it completed sale of its businesses in Brazil, Argentina, Mexico, and Venezuela, and 13 other countries in Latin America and Caribbean to a developmental licensee organization. This resulted in impairment and other charges of $52.7 million and $1.66 billion reflected in discontinued operations.

McDonald's said it expects dairy costs in the U.S to rise between 14% and 20%, and the cost of chicken to climb between 4% and 5% for the full-year. Beef costs should remain flat, the company said.

Japanese stores were boosted by strong demand for the Mega Teriyaki sandwich, the company said, while its breakfast menu and the 24-hour drive-through locations helped the Australian business.

For the quarter, domestic locations in McDonald's generated strong operating income growth despite industry-wide commodity and labour headwinds.

McDonald’s stock fell $0.30 at $56.42 and in the last 52 weeks it has traded between $40.78 and $57.53.

Analysts at Thomson Financial estimate fourth quarter earnings of 68 cents per share and $2.84 per share in the year 2007. Revenue in the fourth quarter is estimated between $5.72 billion and $5.8 billion and for the year 2007 between $23.00 billion and $23.45 billion.

McDonald’s is the world’s largest food service retailer with more than 30,000 restaurants servicing 52 million people in 119 countries.
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