U.S. News

McDonald's Posts Loss After Latin America Charge


McDonald's, the world's biggest restaurant company, on Tuesday posted a quarterly net loss after taking a big charge for the sale of its outlets in Latin America.

Today, McDonald's Corporation marked the beginning of its 50th anniversary celebration by introducing its 50th anniversary restaurant design at an event at the "Rock 'n' Roll McDonald's" in downtown Chicago. This rendering of McDonald's one-of-a-kind futuristic restaurant design which will be built on its Chicago flagship site at 600 N. Clark Street is expected to open in April 2005. McDonald's founder Ray Kroc opened his first restaurant in Des Plaines, Illinois, on April 15, 1955. (PRNewsfoot)

The company also announced the planned retirement of its chief financial officer.

Without the charge, earnings per share were up 27 percent, continuing the strong results McDonald's has posted in recent quarters as a variety of new products, extended hours and other initiatives have helped boost sales.

"McDonald's has significant competitive advantages in the fast-food industry," said John Owens, restaurant analyst at Morningstar, citing the strength of the company's brand, size and convenient locations.

The company's second-quarter net loss was $711.7 million, or 60 cents per share, compared with a net profit of $834.1 million, or 67 cents, a year ago.

Excluding the Latin America charge, McDonald's earned 71 cents a share, in line with the better-than-expected forecast the fast-food chain gave last week and up from 56 cents posted a year earlier.

In April, McDonald's said it would sell about 1,600 restaurants in Latin America and the Caribbean to a franchisee so it could focus resources on markets where it sees the biggest opportunities for growth, such as China.

Total revenue rose 12 percent to $6.01 billion. Analysts on average were expecting revenue of $5.90 billion, according to Reuters Estimates.

McDonald's sales have been helped by the launch of premium coffee in the United States, more 24-hour restaurants and chicken snack wraps that have brought in customers outside of normal meal times, Owens said. But he also cautioned that competitors would come out with their own versions of these after seeing McDonald's success.

"I still think they can improve from where they are, but it will be incremental and I do believe competitors will narrow the gap," he said. Morningstar has a rating of three stars out of a possible five for McDonald's and a fair value of $49.

Chief Executive Jim Skinner in an interview with Reuters last week said that four years into the company's aggressive turnaround there was still plenty of room for the company to boost its U.S. sales.

McDonald's last week said second-quarter sales at restaurants open at least 13 months rose 7.4 percent.

Restaurants in Asia reported a 10.9 percent same-store sales increase, while European same-store sales rose 7.8 percent. In the United States, the company's biggest market, same-store sales rose 5 percent.

McDonald's has said it plans to pay out a combined total of $5.7 billion for dividends and share buybacks in 2007-2008.

Before Tuesday, McDonald's traded at about 17.4 times analysts' average 2008 earnings estimate, compared with multiples of 25.8 and 18.7 for rivals Wendy's International and Yum Brands , respectively.

CFO to Step Down

Separately, McDonald's said its chief financial officer, Matthew Paull, will retire to pursue a teaching career.

McDonald's said Paull will stay in the post until at least the end of the year to help transition a replacement. The company added it will soon begin an internal and external search for a new CFO.

Paull, 55, was named to the position in 2001.