Despite new menu items and extended store hours, McDonalds (MCD) missed sales and earnings estimates on continued weakness in Europe and Asia.
The international fast food giant reported net income of $1.4 billion, or $1.38 per share, versus the $1.35 billion, or $1.32 per share, from the same period a year ago. Revenue for the quarter was $7.08 billion, up 2.4 percent from the previous year. Analysts were expecting a profit of $1.40 per share on revenues of $7.10 billion.
The company specifically cited its business Europe and Asia as the culprit behind the sales miss. More importantly, the company believes that these markets will continue to present long-term issues, at least until the global economic environment improves.
“While our consolidated results this quarter were positive, global comparable sales for July are expected to be relatively flat,” CEO Don Thompson said in a statement. “Based on recent sales trends, our results for the remainder of the year are expected to remain challenged.”
For the quarter, Asia/Pacific, Middle East, and Africa (APMEA) comparable sales declined 0.3 percent, driven by poor performance in China, Australia, and Japan. Operating income for the segment declined by 1 percent.
Meanwhile, U.S. comparable sales rose by 1 percent while operating income was flat. The company cited new product introductions such as the new Premium McWrap and continued demand for the dollar menu as notable areas of growth.
Europe was stressed as an area of sales weakness, as comparable sales dropped 0.1 percent on poor results in France and Germany. However, operating income in Europe increased by 5 percent, as weak sales were offset by higher margins.
“Looking ahead, Europe remains focused on reigniting momentum with enhanced premium beverage and menu items and everyday affordability options across all dayparts delivered through an enhanced restaurant experience,” McDonalds said in a press release. If the economic environment in Europe turns, the region could become a major driver of earnings growth in 2014.
For the time being, however, McDonalds is following the food industry’s trend of weak international, but strong domestic performance. Until the global economic climate improves, it appears that this trend will continue for McDonalds and the broader industry.
On the news, McDonalds shares dropped 2.7 percent to $97.58 during trading on Monday.
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