McDonald’s Corp. said Friday its first-quarter profit fell 14 percent due largely to a sizable tax benefit it received in the same period a year ago, producing the fast-food chain’s biggest quarterly drop since 2002.
The earnings were in line with a preliminary announcement by the Oak Brook, Ill.-based company last week.
Despite lower income, the results showed a continuation of the momentum McDonald’s has built up over the last three years, particularly in its U.S. restaurants, thanks to a series of successful new products, extended hours, restaurant renovations and allowing customers to pay with credit and debit cards. It said sales have now risen 35 months in a row at restaurants open at least 13 months.
Net income was $625.3 million, or 49 cents per share, for the three months ended March 31. That compared with $727.9 million, or 56 cents per share, a year earlier when results were boosted by several one-time items, most notably a favorable audit settlement of the company’s 2000-2002 U.S. tax returns that added 13 cents per share.
The per-share earnings matched the consensus estimate of analysts surveyed by Thomson Financial, which was affirmed by McDonald’s in an April 13 announcement.
Revenue was $5.1 billion, up 6 percent from $4.8 billion and slightly more than analysts’ consensus estimate of $5.04 billion.
The year-over-year earnings decline was McDonald’s largest since the fourth quarter of 2002, when it posted a net loss of $344 million — its first ever as a publicly traded company. The company said operating income rose 2 percent to $923.8 million in the quarter and comparable sales grew by 5.2 percent worldwide, led by the U.S. business.
“Performance for the first quarter reflected more customer visits and enhanced profitability as we continued to connect with our customers and increase the relevance of our brand,” CEO Jim Skinner said in a statement.
Continuing a steady rollout of new menu items, the burger chain introduced spicy chicken sandwiches and premium coffee in its U.S. restaurants during the first quarter, followed up by Asian chicken salad this month.
McDonald’s remains under pressure from consumer advocates to offer healthier food, a trend it has tried to get in front of by adding entree-sized salads and the option to substitute apple slices and juice for fries and soft drink in Happy Meals, among other changes. A new book co-written by “Fast Food Nation” author Eric Schlosser, “Chew On This,” adds to criticism of the fast-food industry for its perceived role in increased obesity.
But despite that and intense competition in the restaurant industry, profits and sales are trending upward and the stock is just off a 5½-year high reached in February. Its shares fell 64 cents to $34.44 in morning trading on the New York Stock Exchange.
Fitch Ratings analyst Leigh Frest cited strong operating results and improving profitability in reaffirming McDonald’s ratings this week.
“The company has been successful in recent years in responding to obesity and changing consumer tastes, with several premium menu additions, including recently introduced roast coffee and Asian salads,” she wrote in a note to investors.