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updated: 7/22/2014 9:49 AM

Mcdonald's profit trails estimates as sales slump persists

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Bloomberg News

Oak Brook-based McDonald's Corp., the largest restaurant chain by sales, posted second-quarter profit that trailed analysts' estimates after a U.S. sales slump lingered.

Net income fell less than 1 percent to $1.39 billion, or $1.40 a share, from $1.4 billion, or $1.38, a year earlier, the Oak Brook, Illinois-based company said today in a statement. The average of 24 analysts' projections compiled by Bloomberg was $1.44 a share. Revenue rose 1.4 percent to $7.18 billion, trailing the estimate for $7.29 billion.

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McDonald's U.S. business faces a crowded field and last year it added many new items, slowing down its kitchens. Competitors such as Yum! Brands Inc.'s Taco Bell, Wendy's Co. and Burger King Worldwide Inc. also are selling more new fare that's attracting Americans. McDonald's U.S. same-store sales fell 1.5 percent, compared with a 1.7 percent decline in the previous quarter. Analysts had estimated that the sales would be little changed, according to Consensus Metrix.

"They're losing kind of a little bit of share to everybody now," said Peter Saleh, a New York-based analyst at Telsey Advisory Group. Along with fellow fast-food burger joints, pizza and fast-casual chains may be stealing some of McDonald's business, he said.

Shares Decline

The shares fell 1.7 percent to $95.93 at 9:59 a.m. in New York, after sliding as much as 2.5 percent for the biggest intraday drop in a year. McDonald's had gained 0.5 percent this year through yesterday, while the Standard & Poor's 500 Restaurants Index dropped 0.2 percent.

While McDonald's has tried advertising free coffee, new bacon Clubhouse sandwiches and Happy Meals, the promotions have failed to boost same-store sales. Comparable-store sales are considered an indicator of a retailer's growth because they include only established locations. June comparable-store sales fell 3.5 percent in the U.S.

Meanwhile, Taco Bell's same-store sales have improved after the company introduced breakfast items nationwide in March. The Mexican-food chain also recently began selling a high-protein menu in the U.S.

McDonald's has more than 35,400 restaurants worldwide and about 19 percent are owned by the company. By 2016, the chain is seeking to franchise as many as 1,500 of its company-owned stores, primarily overseas, it said in a statement in May.

Same-store sales in McDonald's Asia-Pacific, Middle East and Africa region rose 1.1 percent during the quarter. Analysts estimated a 1.5 percent increase, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. They fell 1 percent in Europe, where McDonald's gets about 40 percent of revenue. Analysts projected a 0.7 percent gain.

The hamburger chain has been selling value meals in Germany as well as family packs of McNuggets and onion rings in France to attract budget-conscious European diners.

July global same-store sales are expected to be negative, McDonald's said in today's statement.

(McDonald's will host a conference call at 11 a.m. New York time to discuss earnings. To listen, visit MCD US Equity EVT .)

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5bloomberg.net To contact the editors responsible for this story: Nick Turner at nturner7bloomberg.net Kevin Orland

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