Mickey D is in trouble!
It was only a matter of time before the European beef quality scare started to hit us in the hamburgers. This week, McDonald's Corp (MCD:NYSE) reported a 16% drop in first-quarter net income. Here are the McDetails...
McDonald's net income for Q1 2001 came to US$378.3 million, down from US $450.9 million the same quarter a year earlier. That translates to 29 cents per share, down from 33 cents.
A large part of the blow came from the European market, where the spread of 'mad cow' and hoof-and-mouth diseases has seriously hurt the meat business. With meat quality under suspicion, Europeans are thinking twice about grabbing a juicy quarter-pounder with cheese. McDonald's sales have fallen 6% on the Continent.
But here in the States, Mickey D's and the populace have an unspoken "don't ask, don't tell" agreement about burger quality. We don't want to know what's in them, we just know they taste good and they're cheap. And we definitely don't want to think about why they're so cheap. In North and South America sales are up 4% and 5%, respectively.
Unfortunately, I don't have specific numbers on McDonald's Canada (wholly owned by MCD), which is struggling with a US$11.2 million lawsuit. Apparently a 9-year-old girl in Toronto got a bonus in her Big Mac. Management is claiming that the burger was a new special called "The Templeton," but the girl's parents are convinced that there should not be rat heads in hamburgers. We'll see who's right.
Besides meat quality and PR problems, the other thorn in McDonald's side at the moment is weak foreign currencies. The strength of the dollar against the Euro and Asian currencies has the company scrambling to sell even more product, just to make the same profit. Until foreign economies strengthen and the meat scare dies down, the road ahead looks a little rough for Ronald and the gang.
McDonald's has already lowered profit expectations for the year. The company expects to post US$1.52 a share, up from US$1.46 last year.
Until next time,
Michael Riska
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