Fast food giant McDonald’s Corporation (NYSE:MCD) recently released its second quarter results and they were not as good you’d have expected. The economic weakness has affected many food service retailers around the world and McDonald’s Corporation (NYSE:MCD) is no exception to it. Even though the company’s resilient business structure has helped it to post a profit, it still trailed the analysts’ estimates.
McDonald’s Corporation (NYSE:MCD) is primarily a franchiser, with more than 80% of its global restaurants operated by local businessmen and the company heavily relies on these franchisees for generating profit yet, it was unable to fulfill the expectations.
Let’s take a look at the factors that held back McDonald’s Corporation (NYSE:MCD) growth.
The facts & figures
McDonald’s Corporation (NYSE:MCD) revenue increased 2.43% to $7.08 billion as compared to prior year, marginally below the analysts’ estimate of $7.09 billion. The net income increased 3.7% from $1.35 billion to $1.4 billion and EPS increased $1.32 to $1.38 per share. The foreign currency exchange rate affected the earnings by $0.02 per share, hereby preventing the company from satisfying the analyst’s estimate of $1.40 per share.
Given the fact that McDonald’s Corporation (NYSE:MCD) is heavily exposed to Europe, the company’s hope of generating larger revenue was dented by the widespread economic weakness in the continent. Global same stores sales increased 1%, but there was a decline of 0.1% in Europe because of the economy there.
The European segment performed better than the Asian market, where the comparable store sales went down by 0.3%. The negative impact of avian flu in China stalled the company’s growth.
Meanwhile, the comparable store sales went up 1% in the U.S.A. The sales in the United States were stimulated by the company’s increased emphasis on popularizing new and affordable products and including its gamut of products in the menu.
Even after struggling in the global market, McDonald’s was able to prevent its margins from going downhill. The global franchisees network contributed about 70% of the total profit and also compensated for the loss incurred due to reduced business opportunities in Europe.
What does the future hold?
McDonald’s has gone through its fair share of difficulties and is trying very hard to deal with the problems. The company will not be resorting to short term solutions like discount coupons and are focused on resonating with the needs of the people.
McDonald’s is trying to resurrect its market in China, which was predominantly affected by avian flu. The strategy implemented by the company includes diversifying its menu beyond chicken and marketing the campaign that concentrates on superiority and safety of its products.