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McDonald’s Corporation (MCD), The Wendy’s Co (WEN): Are the Golden Arches Falling?

The king of the fast-food industry recently released disappointing second-quarter financial results, confirming that the remainder of 2013 is likely to be unsatisfactory. Investors are now left with the question of what that news means to the entire industry and their money.

What Happened

McDonald's Corporation (NYSE:MCD)On July 22, McDonald’s Corporation (NYSE:MCD) reported second-quarter financial results. Earnings of $1.38 per share came in $0.03 below the expected mark of $1.41, while revenue fell just short of the $7.1 billion expected, at $7.08 billion.

McDonald’s Corporation (NYSE:MCD) projects global same-restaurant sales in July to be relatively flat. The company’s CEO Don Thompson commented, “Based on recent sales trends, our results for the remainder of the year are expected to remain challenged.” The disappointment on the numbers side of things, as well as the downbeat forecast for the remainder of the year, combined to send the stock tumbling nearly 3% the next day.

Digging Deeper

The report included second-quarter same-restaurant sales in the United States increasing 1%. McDonald’s Corporation (NYSE:MCD) blamed its uninspiring domestic results on smaller U.S. rivals, namely The Wendy’s Co (NASDAQ:WEN) and Burger King Holdings, Inc. (NYSE:BKC), debuting attention-grabbing products and limited-time offers.

Most prominently, The Wendy’s Co (NASDAQ:WEN)’s Pretzel Bacon Cheeseburger is set to be the chain’s best-selling new product in at least a decade. While McDonald’s Corporation (NYSE:MCD) did say its new line of Quarter Pounder hamburgers performed well, this comes after it pulled lackluster items such as premium Angus burgers and its Fruit & Walnut salad from its menu. The Wendy’s Co (NASDAQ:WEN), an entirely domestic company, is expected to report a 1.1% gain in second-quarter sales when it reports in August.

On the European front, same-restaurant sales were down 0.1% for McDonald’s Corporation (NYSE:MCD), the third consecutive quarter of declines in the region. A deterioration in the European market does not appear to be a company specific trend, as in the first quarter, revenue generated from Burger King Holdings, Inc. (NYSE:BKC)’s Europe, Middle East, and Africa segment dropped nearly 10%.

A decline was also experienced in the Asia/Pacific, Middle East and Africa (APMEA) region for McDonald’s Corporation (NYSE:MCD), with sales falling 0.3%.

Yum! Brands, Inc. (NYSE:YUM)

also recently reported weakness stemming from the Asian region, when it posted sales at established restaurants in China dropping 10% in June, up from a drop of 19% in May. Much of this decline can be accredited to fears of the avian flu. The disease is believed to be passed on by live poultry, and with chicken being KFC’s cornerstone product, fears that KFC’s products might contain the disease have driven down sales in the country.

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