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McDonald's sees profits soar

Third-quarter results reflect sales resurgence

Customers dine at a McDonald's in Chicago Wednesday. The eatery now offers more healthful fare.
Customers dine at a McDonald's in Chicago Wednesday. The eatery now offers more healthful fare.
M. Spencer Green, Associated Press

CHICAGO — McDonald's Corp. said Wednesday its third-quarter profits will come in well above Wall Street estimates, reflecting a sales resurgence in its U.S. restaurants that remains in full force.

The announcement prompted the latest jump in McDonald's stock, which has doubled since the company began reviving flagging sales and earnings in spring 2003. Shares rose $1.31, or 4.8 percent, to close at $28.86 on the New York Stock Exchange.

The fast-food giant said its per-share profits for the quarter will top last year's by about 42 percent, due largely to impressive September sales. Its earnings estimate of 61 cents per share is 12 cents higher than the consensus estimate of analysts surveyed by Thomson First Call.

McDonald's said earnings, due out Tuesday, will include 7 cents per share from a tax benefit from an international transaction and other items. Chief executive Charlie Bell also singled out robust U.S. sales, which he credited to a combination of new menu items, longer restaurant hours, stronger marketing and improved service and food quality.

The company, based in Oak Brook, Ill., has enjoyed six straight quarters of higher comparable sales worldwide, burying an extended slump since overhauling management, cutting back on expansion, selling off non-McDonald's brands, making a push for healthier food and adding entree-size salads, McGriddles breakfast sandwiches, white-meat chicken nuggets and chicken strips.

"They've hit a grand slam in a very difficult environment over the last 12 to 18 months," said analyst Douglas Christopher of Los Angeles-based Crowell Weedon and Co., referring to restaurant-industry competition, growing obesity concerns and a brief mad-cow scare.

"It started with a focus back on the McDonald's brand," he said. "And adding three to five stores a day was crazy. That affected profitability and cash flow, and everything started to fall back into place after that."

September sales results showed gains of 10.6 percent at U.S. comparable stores — restaurants open 13 months or more — and 7.3 percent for comparable sales worldwide. For the third quarter, comparable sales were up 8.5 percent at its more than 13,000 U.S. restaurants over the same period of 2003 and 5.8 percent worldwide. U.S. comparable sales are up 10.4 percent so far this year.

Bell, who has been undergoing chemotherapy for colon cancer, said McDonald's profitability continues to improve thanks to sales strength and a focused strategy. He noted that the U.S. sales increases came despite hurricanes and heavy rains that affected results in eastern and southern regions. The U.S. gains more than offset another lackluster showing in Europe, where McDonald's sales were flat for the third quarter. Comparable sales in Europe declined 0.6 percent for September and finished 0.3 percent higher for the quarter; they are up 2.7 percent for the year.