McDonald's Corp. showed its first sign of vulnerability to the U.S. economic slowdown Monday and uneasy investors responded by selling off the fast-food chain's stock despite its booming international sales and healthy $1.27 billion profit.
The company said sales were flat last month at U.S. restaurants open more than a year, blaming winter storms but also acknowledging "softer consumer spending" as Americans tightened their wallets in a volatile economy.
That snapped a streak of 56 consecutive months of higher year-over-year U.S. comparable sales, and a recession-wary Wall Street pushed McDonald's stock to a 4 1/2-month low.
Shares in the Oak Brook, Ill.-based company, already down 7 percent since a hint of a December sales slowdown surfaced two weeks ago, shed another $3.48, or 6.4 percent, to $50.62 in afternoon trading after dipping as low as $49.36. They were down more than 20 percent from last month's all-time high of $63.69.
Chief Executive Jim Skinner said customers showed more of a preference last month for items on its dollar menu. He said the weakened economy is likely to knock 1 to 2 percentage points off its U.S. comparable sales in the near term, with January U.S. sales roughly 1.5 percent above a year ago.
"We're recession-resistant, not recession-proof," Skinner said on a conference call.
But he insisted the company is poised for continued growth in the U.S. and elsewhere. It is also in a much better position to ride out tough economic times than in previous recessions due to its later hours, drive-through service and ability to accept credit and debit cards. U.S. sales currently represent 35 percent of all revenues, he noted, down from 58 percent in 1991.
McDonald's executives said the company would avoid price-cutting "burger wars" in an effort to woo customers.
Wall Street analysts voiced a wait-and-see attitude on the flat U.S. sales month.
"Weak U.S. trends are likely to put some pressure on the stock until investors have a sense of whether December was a one-month outlier or a new trend," Larry Miller of RBC Capital Markets said in a note to investors.
Paul Westra of Cowen and Co. said he was surprised at the market's negative reaction.
Strong sales in Europe and elsewhere "continue to more than offset the modest shortfall from the slower, but still recession-resistant U.S. comps," he wrote.
Net income for the October-through-December period amounted to $1.06 per share and was up 3 percent overall from $1.24 billion, or $1 per share, during the same period a year earlier.
Excluding income tax benefits of 33 cents per share, the company earned 73 cents per share, beating analysts' consensus estimate of 71 cents per share, according to a Thomson Financial poll.
Quarterly revenue rose 6 percent to $5.75 billion, also topping Wall Street's $5.61 billion estimate.
Global same-store sales rose 6.7 percent for the quarter.
For the full year, McDonald's profits fell 32 percent to $2.4 billion, or $1.98 per share, from $3.5 billion, or $2.83 per share, a year earlier. Revenue climbed 9 percent to $22.8 billion. The full-year results were weighed down by a hefty one-time charge for the sale of some Latin American operations.
Separately, McDonald's said Monday it would also begin to pay dividends quarterly.