McDonald’s Forecasts a Price Hike
Net income advanced to $1.21 billion, or $1.15 a share, the world’s biggest restaurant chain said in a statement. Analysts on average projected $1.14, according to a Bloomberg survey. Items such as beverages and the Chipotle BBQ Bacon Angus burger helped lure people in the U.S., the Oak Brook, Ill.- based company said.
McDonald’s and other restaurant chains are weighing price increases as surging expenses for commodities such as beef, pork and eggs cut into profitability. Chief financial officer Peter Bensen reiterated that the company will probably raise prices to help counter the surge in ingredient costs.
“Food costs pressures are out there,” said Jack Russo, an analyst at Edward Jones & Co. in St. Louis who recommends holding the shares. “They may run into a few challenges this year, it will be interesting to hear them talk about raising prices because we know that McDonald’s is seen as a value brand.”
McDonald’s expects food expenses to rise as much as 4.5% in the U.S. and Europe, according to a filing. In February, the company forecast an increase of as much as 2.5% in the U.S.
Beef prices may rise as much as 5.5% and pork may jump 7% in 2011, according to U.S. Department of Agriculture data. The fast-food chain is the biggest beef user of all restaurants in the U.S., according to Kevin Good, a senior analyst at CattleFax in Centennial, Colorado.
To keep customers coming in, chief executive officer Jim Skinner has debuted items like oatmeal and a line of McCafe frozen drinks, broadening the appeal of McDonald’s menu beyond burgers.
Chipotle Mexican Grill Inc., the burrito chain spun off from McDonald’s in 2006, reported that restaurant operating profit margin shrank 0.9% to 25.2% in the first quarter on higher ingredient costs. The chain has raised menu prices in certain regions of the U.S. to help counter food inflation.
McDonald’s sales at stores open at least 13 months climbed 4.2% globally last quarter. They rose 2.9% in the U.S., 5.7% in Europe, and advanced 3.2% in Asia, the Middle East and Africa. Comparable-store sales are an indicator of growth because they exclude the impact of store openings and closings.
McDonald’s Holding Co. Japan Ltd. said this month that March comparable sales fell 7.3% because of restaurant closures following the March 11 earthquake. Of the 3,300 stores in Japan, more than 50 remain closed as of April 14, according to Heidi Barker, a company spokeswoman. McDonald’s has also increased its exports of produce, sauces and oil to Japan to keep restaurants there stocked.
In the first quarter, McDonald’s sales increased 8.9% to $6.11 billion, compared with the average analyst estimate of $6.01 billion. In the year-earlier period, profit was $1.09 billion, or $1 a share.
From the April 22, 2011, Prepared Foods' Daily News.