McDonald's posts profit despite recession

As most restaurant companies prepare for what will likely be a dismal fourth-quarter earnings season, the No. 1 U.S. hamburger chain reported strong same-store sales in its fourth quarter, helping boost the company's profit past Wall Street's estimates.

“While we clearly prefer a more robust environment, today's market conditions play to our strengths,” Chief Executive Jim Skinner said on a conference call with investors and analysts, adding that its price-sensitive customers “are feeling the pinch almost everywhere else in their daily lives.”

McDonald's fared well in the quarter due largely to its low prices and the reach of its ubiquitous Golden Arches. The company has also improved the quality of its food and added a number of new products in the past year, including fried chicken biscuits and sandwiches and espresso-based coffee drinks.

The Oak Brook, Illinois-based chain said its net income for the quarter ended Dec. 31 fell to US$985.3 million, or 87 cents per share, beating analyst estimates from Thomson Reuters by 4 cents per share. That compares to US$1.27 billion, or US$1.06 per share, a year ago, when it had a tax benefit of 33 cents per share. Excluding the tax gain, the company earned 73 cents per share in that quarter.

McDonald's also managed to reduce operating costs and expenses despite higher beef, cheese and other ingredient costs. Chief Financial Officer Pete Benson said the company's overall “basket of goods” — an approximation of its grocery bill — rose 10 percent for the quarter.

High ingredient costs contributed to the chain's decision to raise the price of its popular Double Cheeseburger in November and replace the sandwich on the Dollar Menu with a new double burger that has one slice of cheese instead of two.

The company said it expects commodity costs to rise about 5 percent to 5.5 percent in the U.S. and about 4 percent to 4.5 percent in Europe in 2009. Revenue fell to US$5.57 billion from US$5.75 billion due to the impact of a stronger dollar. Companies with international operations typically convert foreign currencies into dollars. Analysts anticipated revenue of US$5.70 billion.

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