McDonald’s Corp.’s CEO once again said the world’s largest restaurant company needs more time to show improvements, after missing Wall Street’s quarterly sales and profit expectations for the second consecutive quarter as it struggles to keep up with more nimble competitors.
Shares of McDonald's, a component of the Dow Jones industrial average, were down 1.8 percent to $95.79 following the results on Tuesday.
Meanwhile, McDonald’s addressed the food safety concerns in China after regulators shut a local meat supplier following a TV report that showed workers picking up meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat.
CEO Don Thompson said that McDonald’s audits its suppliers and is cooperating with the investigation. “In this case, we do feel that we were a bit deceived relative to one of these plants, so we’re clearly looking at that,” Thompson said during the company’s quarterly conference call.
However, the focus on Tuesday was on Oak Brook-based McDonald’s continued slump. McDonald's has been saying for months that it will take time for efforts such as service improvements to lead to better results.
“We’ve often said that there is no one silver bullet or single solution for driving sustained growth,” Thompson said during the somewhat tense call with analysts. “We are pushing forward on multiple fronts as we focus on those areas within our control to enhance our relevance and appeal to consumers.”
McDonald’s said same-store sales, or sales at locations open at least 13 months, were relatively flat during the second quarter. U.S. same-store sales fell 1.5 percent. Analysts, on average, were looking for global same-store sales to rise 0.8 percent and had anticipated a 0.3 percent decline in U.S. same-store sales, according to Consensus Metrix.
Around the globe, McDonald's saw a decline in visits to its restaurants, but the average spent by patrons was higher.
The company’s results in the United States worsened as the quarter progressed. U.S. same-store sales were flat in April, down 1 percent in May and fell 3.5 percent in June. Analysts, on average, expected June same-store sales to rise 0.1 percent, according to Consensus Metrix.
McDonald’s admitted that it has work to do this year. Its poor performance came just a day after Chipotle Mexican Grill turned in a 17.3 percent jump in its same-store sales and a much higher-than-anticipated profit.
Janney analyst Mark Kalinowski, who last week had suggested weak U.S. sales based on a survey of McDonald’s franchisees, entitled a note on Tuesday’s results “Did Somebody Say McTroublesome?”
Kalinowski said that the recent World Cup might be to blame for some of the company’s poor performance, as “anything that keeps folks at home watching TV, keeps them away from their local McDonald’s restaurant.”
McDonald’s did not refer to the World Cup, but did mention a variety of factors ranging from the overall pressure on the quick-service restaurant industry to the time it takes franchisees to start making the changes it is implementing, such as bringing in new food preparation tables.
Thompson, who has led McDonald's since July 2012, stressed that the company’s efforts are going to take the time.
“I feel that it is moving in an appropriate direction. I am impatient as well, believe me. Our senior team is. Our operators are. But we have to do this, and do it in the right way, so that we have long-term enduring, profitable growth and not just a flash in the pan,” Thompson said.
Baird Equity Research analyst David Tarantino said his “patience in waiting for positive catalysts” such as signs of better same-store sales “has been running thin.” He has an “outperform” rating and $104 price target on the shares.
McDonald's said it earned $1.39 billion, or $1.40 per share, on $7.18 billion in revenue, versus a profit of $1.40 billion, or $1.38 per share, on $7.08 billion in revenue a year earlier. Analysts, on average, had been looking for a profit of $1.44 per share on $7.29 billion in revenue.
McDonald’s said it expects 2014‘s same-store sales to be relatively similar to its performance so far this year through June. It said July same-store sales should decline.
On Monday, McDonald’s and competitor Yum Brands Inc., which owns Taco Bell, KFC, Pizza Hut, said they immediately stopped using the supplier, Shanghai Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI Group that served restaurants in the Shanghai area. On Tuesday, Thompson said McDonald’s is no longer serving product from the facility that has had issues, while other facilities have been cleared by the Chinese government.
On Monday, OSI Group said it took the TV report very seriously and was dealing with the issue quickly, adding that management believed the incident was an isolated event and adding that the company does not tolerate any actions that compromise food safety. A representative for OSI Group did not immediately respond to a request for a response to Thompson’s comments on Tuesday.