Fast food giant McDonald’s Corporation (NYSE:MCD) recently released its second-quarter results which turned out to be below expectations. Although revenue increased, McDonald’s Corporation (NYSE:MCD) faced problems in cutting costs and improving profits. With results being not so spectacular, the company’s forecast of a tough year ahead makes things worse.
What numbers say?
McDonald’s Corporation (NYSE:MCD), in its second quarter, reported an increase of 2.4% in revenue to around $7.08 billion, which was below consensus estimates of $7.09 billion. Global comparable sales increased 1% in the quarter, beating the estimated 0.8%. Sales were reported to be weak in Europe and China due to high tax rates and the effect of avian flu.
Net income increased 3.7% to $1.4 billion from $1.35 billion last year. Earnings per share came in at $1.38, up from last year by $0.06 per share, but were below analysts’ estimate of $1.40 per share. The company said that it witnessed high foreign currency rate fluctuations, which reduced its quarterly profit by 2%.
Despite a setback in Europe, Russia, and Germany, the company is still taking up its expansion plan in Vietnam, focusing on the eager young population of the continent. It is actively advertising its affordable items like the “Dollar Menu” and “combo meals” for customers who are on a budget. By opting for extensive advertisement, healthier, fresher sounding items, and its late night breakfast services, McDonald’s Corporation (NYSE:MCD) is aiming to bring in more traffic to its restaurants. It is adding various new products, like the hamburgers — including a bacon habanero and the egg white version of its McMuffin — to make its products healthier and low on calories.
The company is aiming to reduce its capital expenditure and has reduced its new location estimate from 1,600 to 1,500. Analysts believe that its entry into emerging markets like Vietnam may provide a boost to the company, but McDonald’s Corporation (NYSE:MCD) lacks the first mover advantage here. McDonald’s Corporation (NYSE:MCD) is facing difficulties because of its incapability to earn higher profits from its existing low prices. The company incurs various costs that are outside of its control, like commodity expenses and locally-governed employee expenses.
McDonald’s is now streamlining its menu by reducing items like Caesar Salad, The McSkillet Burrito, and the Bagels, as they reduce the efficiency per crew hour. The company is facing problems in providing faster services to the drive-through segment, with its competitors like Chipotle Mexican Grill, Inc. (NYSE:CMG), Burger King Worldwide Inc (NYSE:BKW), and The Wendy’s Co (NASDAQ:WEN) offering quicker and better services.