McDonald's Slips in the Second Quarter

Contributor
Company reports disappointing earnings as shares slide and profit falls

The mighty Micky-D’s has slipped a bit since we last checked in. The McDonald’s company has reported a lower-than-expected quarterly profit in the second quarter, blaming the combo of a sluggish economy, frugal customers, growing competition, and the downsides of the strengthened dollar for the disappointing figures.

Shares fell 3 percent, to $88.81, and net income fell to $1.35 billion, or $1.32 per share, from last year’s $1.41 billion, or $1.35 per share. On average, analysts were looking for $1.37 a share, according to Thomson Reuters I/B/E/S.

Surprisingly, Europe represents the biggest sales market for McDonald’s, which means the strengthened U.S. dollar led to lessened values of overseas sales for the American company. The stronger dollar equates to a cut of $0.07 per share.

Additionally, the American consumer still proves to be pretty frugal. But it might just be a sign of a lessened interest in eating at restaurants at all.

"You’re starting to see signs that consumers are spending less at restaurants," said Morningstar analyst R.J. Hottovy. "You’re also seeing increased competition." 

This competition comes from other huge food chains who have, along with McDonald’s, seen the huge growth potential in emerging markets such as Russia, India, and China, and have bolstered their focus on growth there. Subway, Denny’s, Starbucks, Burger King, and Wendy’s are all examples of the chains promising to make for a tougher road for the golden arches.

For July, McDonald’s expects same-restaurant sales to rise, but by less than they did in the second quarter.