McDonald’s posts 4th-quarter profit

“While we clearly prefer a more robust environment, today’s market conditions play to our strengths.”

Jim Skinner

McDonald’s chief executive

McDonald’s profits exceed analysts’ estimates.

NEW YORK (AP) — McDonald’s Corp. proved Monday that its burgers and fries can still tempt thrifty consumers around the world despite a deepening recession that has chomped on the profits and sales of its pricier sit-down competitors.

As most restaurant companies prepare for what will likely be a dismal fourth-quarter earnings season, the nation’s No. 1 hamburger chain reported strong same-store sales in its fourth quarter, helping boost the company’s profit past Wall Street’s estimates.

“While we clearly prefer a more robust environment, today’s market conditions play to our strengths,” Chief Executive Jim Skinner said in a conference call with investors and analysts, adding that its price-sensitive customers “are feeling the pinch almost everywhere else in their daily lives.”

McDonald’s fared well in the quarter due largely to its low prices and the reach of its ubiquitous Golden Arches.

The company has also improved the quality of its food and added a number of new products in the past year, including fried chicken biscuits and sandwiches and espresso-based coffee drinks.

The Oak Brook, Ill.-based chain said its net income for the quarter ended Dec. 31 fell to $985.3 million, or 87 cents per share, beating analyst estimates from Thomson Reuters by 4 cents per share.

That compares with $1.27 billion, or $1.06 per share, a year ago, when it had a tax benefit of 33 cents per share. Excluding the tax gain, the company earned 73 cents per share in that quarter.

McDonald’s also managed to reduce operating costs and expenses despite higher beef, cheese and other ingredient costs. Chief Financial Officer Pete Benson said the company’s overall “basket of goods” — an approximation of its grocery bill — rose 10 percent for the quarter.

High ingredient costs contributed to the chain’s decision to raise the price of its popular double cheeseburger in November and replace the sandwich on the Dollar Menu with a new double burger that has one slice of cheese instead of two.

The company said it expects commodity costs to rise about 5 percent to 5.5 percent in the U.S. and about 4 percent to 4.5 percent in Europe in 2009.

Revenue fell to $5.57 billion from $5.75 billion due to the impact of a stronger dollar. Companies with international operations typically convert foreign currencies into dollars.

Analysts anticipated revenue of $5.70 billion.

McDonald’s does not offer sales or profit guidance but said in a filing with the Securities and Exchange Commission that it expects the stronger dollar to affect its revenue and earnings in 2009 as well.

Same-store sales, or sales at stores open at least a year, jumped both worldwide and in the U.S., where most restaurant chains have experienced slower sales as more consumers cut back on eating out.

Global sales at stores open at least a year jumped 7.2 percent, while same-store sales in the U.S. rose 5 percent. International same-store sales were also strong.

Cowen and Co. analyst Paul Westra noted the strong fourth-quarter sales in recommending the stock to investors.

“We believe that McDonald’s broad-based global sales momentum continues partly due to the recession-resistant nature of Brand McDonald’s,” he said, adding in a note to investors that he expects shares to outperform the overall market by more than 25 percent in the next year.

McDonald’s shares rose 38 cents to $58.40 in trading Monday.