McDonald's Hurt by Weak Economy and Currency

McDonald's (NYSE: MCD) reported second quarter earnings of $1.35 billion, or $1.32 per share, which included a $0.07 per share of negative currency impact, compared to $1.38 analyst estimates. The company also reported revenues of $6.92 billion, compared to analyst estimates of $6.94 billion. McDonald's reported a 4.5 percent drop in its second quarter net income, compared to the same period last year.

The company attributes some of its slow down to a difficult economy in Asia. McDonald's noted that Japanese consumers are eating at home more and that it is seeing more price competition in China. The company also stated that new store openings in China, high commodity prices, and high labor costs hurt its second quarter margins. Despite the slow down in Asia, McDonald's still expects to open 225-250 stores in China this year.

The company announced that it experienced slower growth in most major markets. McDonald's European market sales growth was 3.8 percent, but operating net income decreased by 3 percent. Its sales growth in Asia/Pacific, Middle East, and Africa was 0.9 percent for the quarter, and a 2 percent decrease in operating income.

McDonald's Chief Executive Officer Don Thompson stated, "McDonald's global comparable sales remained solid for the quarter while overall results reflected the slowing global economy, persistent economic headwinds and the investments we've made to enhance restaurant operations and provide customers the everyday value they have come to expect from McDonald's.”

A stronger US dollar compared to the euro hurt McDonald's foreign value of sales. The company announced that there was a $0.07 negative impact on its earnings per share because of the stronger dollar. McDonald's also sees its third quarter foreign currency hurting earnings by about $0.08 to $0.10 per share. The company sees foreign currency hurting its full year earnings by $0.21 to $0.23 per share.

Even though McDonald's reported unfavorable earnings, the company stated that it would not change its strategy. The fast food company announced that it would continue to return cash to shareholders and reinvest in the business. During the second quarter of 2012, it returned $1.6 billion to shareholders in the form of dividends and share repurchases. The company typically announces a dividend increase in September.

Don Thompson commented on the business model, "McDonald's has a resilient business model, strong System alignment around the Plan to Win and experience in a variety of economic cycles. While the environment has become more challenging, we continue to see significant opportunities to further differentiate and grow the McDonald's brand. We have the resources and discipline to invest for the long-term benefit of our System and our shareholders."

McDonald's traded down about 3 percent on Monday.