McDonald's earnings fail to impress markets

FAST food giant McDonald's served “slightly disappointing” fourth-quarter earnings after weaker-than-expected December sales in the US and Europe because of poor weather.

Investors and analysts were unimpressed despite the restaurant chain reporting profit in line with expectations.

The outlook for the chain was also clouded by its warning that it expects food costs to be up to 4.5 per cent higher in 2011 in its key markets of Europe and north America.

Net income in the fourth quarter rose to $1.24bn, or $1.16 a share, compared with $1.22bn, or $1.11 a share, in the same period a year earlier.

Total revenue, including sales from company-owned restaurants plus royalties from franchisees and other fees, rose four per cent to $6.21bn, above the $6.20bn analysts had expected.

But the company’s share price fell 0.35 per cent, or 0.26 points, to $74.75 in morning trading.

“Earnings for McDonalds were slightly disappointing, coming in at $1.16 a share for Q4 which were pretty much in line with forecasts,” said Michael Hewson, market analyst at CMC Markets.

McDonald’s’ "grocery bill" – the amount it pays for the ten different commodities that account for about 75 per cent of its food preparation costs – is expected to rise two to 2.5 per cent in the US and 3.5-4.5 per cent in Europe this year.

Executives last year signalled that McDonald's could boost menu prices to offset higher food costs, and several analysts expect those to hit in 2011.

All restaurant operators will be under pressure to raise prices, and analysts said McDonald's size could work to its advantage.

McDonald's had a banner year in 2010, with new menu items including espresso drinks and specialty beverages -- frappes and smoothies -- that boosted sales.

However, last year's strong results have raised the bar for 2011 and some analysts worry that earnings-per-share growth could slow.