McDonald's Sales Rise, Though Restaurant Traffic Remains Pressured -- Update
Dow Jones
By Heather Haddon
McDonald's executives said they were committed to regaining consumers' trust following an E. coli outbreak that sickened dozens, threatening the chain's efforts to shore up its U.S. business.
McDonald's said that sales and guest counts fell in the days following federal officials' announcement of the outbreak last week. The company reaffirmed most aspects of its financial expectations for the year, under what executives said was the assumption that the E. coli outbreak won't significantly depress business.
McDonald's Chief Executive Chris Kempczinski apologized to customers on a Tuesday investor call, and said the company believes the food safety situation has been contained. The company is bringing back Quarter Pounders -- the burger implicated in the outbreak -- to restaurants in affected areas.
"We are certainly very sorry if someone got sick at our restaurant for eating an onion that we use on our QPC," Kempczinski said, referring to the chain's Quarter Pounders.
The Chicago-based chain plans to promote value and mount new marketing campaigns to try to bring back customers, executives said.
McDonald's said its overall revenue grew 3% during the three months ended Sept. 30, compared with the same period last year, while net income fell. Sales and earnings adjusted for one-time items outpaced analysts' forecasts.
Global same-store sales declined for the second quarter. In the U.S., McDonald's eked out growth in same-store sales, despite fewer guest visits. The company's shares rose around 1% to $299.39 Tuesday morning.
Kempczinski said that he was encouraged by the progress made in the U.S., but that the company's overall results fell short of expectations. Traffic to fast-food restaurants remains pressured across the sector, he said.
The results for the quarter don't reflect McDonald's sales since health authorities on Oct. 22 reported dozens of cases of people sickened with E. coli, a bacteria that can cause severe illness when foodborne. At least 75 people have been infected, and one older adult died. Of the 42 people interviewed by public health authorities, all of them said they had eaten at McDonald's, according to federal agencies.
McDonald's stock had declined nearly 6% through Monday's close since health agencies announced their investigation into the E. coli outbreak.
Health authorities are still investigating the outbreak's source. McDonald's and Colorado health authorities on Sunday said that testing had ruled out the chain's beef, with the attention now on slivered onions previously served on Quarter Pounders.
Federal health agencies are leading the outbreak investigation and will determine when to fully rule out beef as a potential cause, a Colorado state spokeswoman said Monday.
McDonald's is one of the first major U.S. restaurant chains to report earnings for the most recent quarter, and it was expected to deliver encouraging results in a challenged industry. Restaurant stocks have struggled this year as consumers have pulled back on discretionary spending, and many companies have turned to promotions and discounts to woo diners back.
McDonald's executives said earlier this year that the company needed to do more to provide affordable options to consumers, after raising menu prices to offset higher costs.
The company had been gaining momentum after releasing a $5 meal deal this summer, according to franchisees and industry data. McDonald's has extended the deal into December, and released a new Chicken Big Mac this month that has sold well and boosted sales of traditional beef Big Macs, franchisees said.
The company said the $5 meal deal boosted customer visits, including among low-income consumers. McDonald's said it aims to release a broader value menu early next year, and it is working with international franchisees to offer more affordable options.
For the third quarter, McDonald's said its net income decreased 3% to $2.26 billion. Earnings per share were $3.23 when adjusted for one-time items, compared with $3.21 expected by analysts polled by FactSet.
Revenue rose about 3% from a year earlier to $6.87 billion, slightly ahead of analysts' expectations.
U.S. same-store sales increased 0.3%, slightly below expectations. Meanwhile, global same-store sales decreased 1.5%, a steeper margin than expected, as McDonald's said that its business faced challenges in France, the U.K., China and the Middle East.
Shares in McDonald's were flat this year through Monday's close. An S&P 500 restaurant subindex gained about 5% during the same period.
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