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McDonald's profit climbs 27 percent

McDonald's Corp. said Friday its third-quarter earnings jumped 27 percent on rising sales of everything from coffee and breakfast items to hamburgers and snack wraps.
/ Source: The Associated Press

McDonald’s Corp. said Friday its third-quarter earnings jumped 27 percent on rising sales of everything from coffee and breakfast items to hamburgers and snack wraps, with help from the weak dollar.

The earnings, which were in line with preliminary results released last week, keep the world’s largest restaurant chain on a sustained roll around the globe.

Net income for the July-through-September period was $1.07 billion, or 89 cents per share, up from $843.3 million, or 68 cents per share, in the third quarter of 2006.

Excluding an after-tax gain of 6 cents per share from the sale of its Boston Market franchise, the Oak Brook-based company said its earnings were 83 cents.

That was in keeping with the revised expectations of analysts polled by Thomson Financial, who upgraded their estimates after McDonald’s disclosed stronger-than-expected preliminary numbers Oct. 12.

Revenue was $5.9 billion, up 7 percent from $5.5 billion a year ago but slightly below the $6.04 billion expected by analysts. The weak dollar boosted sales significantly; excluding currency translation, revenue was up just 3 percent.

The company cited “industrywide commodity and labor headwinds” as weighing on results — a reference in part to soaring costs of commodities such as cheese that it uses in its products. As a result, its U.S. operating margins declined 0.6 percent to 18.4 percent after also decreasing in the first half.

But continuing momentum came from strong global same-store sales, or those from restaurants open at least 13 months, that rose 6.9 percent and increased for a seventh straight quarter.

“With the U.S. still delivering solid sales growth and Europe’s turnaround story powering recent results, McDonalds is on a roll,” Morgan Stanley analyst Mark Wiltamuth said in a research note.

The U.S. market, McDonald’s biggest with nearly 14,000 restaurants, remained at the forefront of its surging sales with an 18th consecutive quarter of higher same-store sales, up 5.1 percent.

The company credits breakfast items, chicken snack wraps and coffee for the latest U.S. gains. McDonald’s coffee sales have risen 20 percent since it introduced a higher-priced premium roast coffee in March 2006.

The biggest increases in the most recent quarter, however, were in its Asia/Pacific, Middle East and Africa division, where same-store sales climbed 11.4 percent — the highest in 10 years. European restaurants also performed well in the quarter, with same-store sales rising 6.5 percent.

“Our strategic focus on building the McDonald’s business by being better, not just bigger, and our global Plan to Win have combined to create enduring business momentum,” CEO Jim Skinner said in a prepared statement. “By offering menu innovations and everyday conveniences that address the needs of our on-the-go customers, we are keeping our brand relevant and in demand.”