McDonald’s shows signs of wear in global economy

Associated Press

NEW YORK

Not even McDonald’s Corp. has an iron stomach when it comes to the global economic downturn.

The world’s largest hamburger chain has thrived in boom and bust times by selling cheap eats and constantly updating its menu with popular items such as fruit smoothies and snack wraps. But the company is starting to show signs of wear and tear from global economic pressures, intensifying competition and penny-pinching customers who are eating out less often in some hard-hit regions around the world.

The Oak Brook, Ill.-based company said Monday that its net income fell 4 percent in the second quarter as a strong dollar ate into results.

When the dollar is strong, international sales translate into fewer dollars back home. That’s problematic for McDonald’s, which does two-thirds of its business overseas. Making matters worse, the dollar hit a two-year high against the euro Monday amid ongoing fears that Spain may need a government bailout.

McDonald’s also is facing higher costs for labor and ingredients, although it said it now expects commodity costs to rise between 3.5 percent and 4.5 percent for the full year, down from the previous forecast of up to 5.5 percent.

Suggesting more challenges ahead, McDonald’s said global sales at restaurants open at least a year rose 3.7 percent for the three months ended June 30. The figure, which is a key metric because it strips out the impact of newly opened and closed locations, represents the slowest growth since the company reported sales growth of 2.3 percent in the fourth-quarter of 2009.

McDonald’s has exceeded expectations in recent years, in large part by emphasizing value and continually evolving its menu to keep up with changing tastes. Some of its most-successful new offerings in recent years — such as snack wraps and specialty coffees — give customers a way to treat themselves for just a few bucks. They also happen to have high profit margins.

In the U.S., McDonald’s said sales rose 3.6 percent in the quarter, with increased traffic contributing to growth.

In Europe, where McDonald’s does 40 percent of its business, the company said customer traffic was down in several economically hard-hit regions. But the company said that overall, sales rose 3.8 percent.