McDonald's Corp.'s (MCD) first quarter FY 2011 net income rose 11 percent as more customers dined at McDonald's, especially in Europe, Australia and China. The company reported an increase of 4.2 percent in global comparable sales, with the U.S. up 2.9 percent, Europe up 5.7 percent and Asia Pacific, Middle East and Africa up 3.2 percent. Revenue for the quarter rose 9 percent to $6.11 billion, compared with revenue of $5.6 billion reported in the first quarter FY 2010. Net income for the quarter was $1.2 billion, and EPS was $1.15 per share, up 11 percent and 15 percent, respectively, compared with net income of $1.08 billion and EPS of $1 per share in the comparable quarter last fiscal year.
Although McDonald's reported strong first quarter results, the company could face challenges in the coming quarters on a number of fronts. It has to deal with rising food prices, while keeping its own prices low. The company said Thursday that it expects prices for most of its ingredients to increase 4 to 4.5 percent in the U.S. and Europe this year. After the release, McDonald's shares were trading lower by 1.99 percent to $76.84.
Foreign currency translation had a positive impact of $0.03 on 2011 diluted earnings per share for the quarter. In addition, the growth in 2011 diluted earnings per share was positively affected by 3 percentage points, or $0.03 per share, as a result of the company recording its share of costs related to the strategic restaurant closings in Japan in 2010.
"Our dedication to building the McDonald's business by optimizing our menu, modernizing the restaurant experience and broadening accessibility continues to drive our global performance," said McDonald's Chief Executive Officer Jim Skinner. "For the quarter, McDonald's delivered double-digit earnings per share growth led by higher comparable sales and guest counts across all geographic segments and strong franchise margin performance. Despite the challenges of the current economic environment, I am confident that McDonald's can continue to grow by listening to our customers and remaining true to our proven Plan to Win strategy."
The business is managed as distinct geographic segments. Significant reportable segments include the United States, Europe, and Asia/Pacific, Middle East, Australia and Africa.
UNITED STATES OF AMERICA
In the U.S., first quarter comparable sales and customer traffic reflect the ongoing demand for McDonald's offerings. Key contributors to the quarter were beverages, including the McCafe line-up, the new Fruit & Maple Oatmeal and featured products including the 20-piece Chicken McNuggets and the Chipotle BBQ Bacon Angus burger.
Strong comparable sales in the U.K., France and Russia as well as positive comparable sales in Germany drove Europe's first quarter results. For the quarter, Europe delivered double-digit operating income growth of 12% (12% in constant currencies).
ASIA/PACIFIC, MIDDLE EAST, AUSTRALIA AND AFRICA
Australia and China fueled the Asia/Pacific, Middle East and Africa segment's first quarter comparable sales growth. Limited-time value offerings, particularly at lunch, restaurant reimaging and service initiatives around drive-thru, delivery and extended operating hours contributed to results throughout the segment.
Jim Skinner concluded, "We remain focused on strategies that will keep the McDonald's brand relevant, contemporary and compelling to our customers and deliver sustained profitable growth. I am confident that by harnessing the collective talents, resources and capabilities of our global System we will continue to grow our business in 2011 and for the long term. As we begin the second quarter, our top-line momentum continues with global comparable sales trending in-line with or better than first quarter sales."