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Higher Beef Prices Taking a Bite Out of McDonald’s Profits

McDonald's has a real beef. Not only are fewer customers visiting the Golden Arches and rival chains eating into its fast-food empire, but now it has to pay more for the meat in its hamburgers.

No wonder it posted a lower quarterly profit on Tuesday as soaring beef prices bit into margins.

McDonald's has already had two years of turbulent sales at U.S. restaurants, due to sluggish economic growth, stiffer competition and internal missteps that have complicated menus and slowed service.

McDonald's posted a lower quarterly profit on Tuesday as high beef costs bit into margins and fewer customer visits resulted in a bigger-than-expected decline in sales.
McDonald's posted a lower quarterly profit on Tuesday as high beef costs bit into margins and fewer customer visits resulted in a bigger-than-expected decline in sales. Gene J. Puskar / AP

Chief Executive Don Thompson, who is under more pressure to improve McDonald's results, said he expects restaurant sales in April to be "modestly positive."

Still, this year promises to remain challenging as Thompson grapples with record-high beef prices, labor cost increases, protests from its minimum-wage workers and aggressive competition for its market-leading U.S. breakfast business from the likes Taco Bell.

Those restaurant sales fell 1.7 percent in the United States during the first quarter. That was worse than the 1.4 percent average estimate of analysts and the sixth straight quarter they have missed Wall Street projections.

"We continue to view McDonald's domestic business as hampered by a menu with far too many items on it, which is slowing average service times," Janney Capital Markets analyst Mark Kalinowski said.

McDonald's first-quarter net income fell to $1.2 billion, or $1.21 per share, missing Wall Street's estimate by 3 cents, according to Thomson Reuters I/B/E/S. That compares with a profit of $1.27 billion, or $1.26 a share, a year earlier.

Edward Jones analyst Jack Russo said higher beef costs were likely a factor in the disappointing profit numbers.

- Reuters