McDonald’s Corp. earnings fall

A McDonald's location in Evanston, IL/Alysha Khan/Medill
A McDonald's location in Evanston, IL/Alysha Khan/Medill

By Alysha Khan

Global fast food giant McDonald’s Corp. ended a year of struggling sales with a 21 percent drop in fourth quarter earnings, missing Wall Street’s expectations, and warned that it may take several months for its new strategies to translate to higher profits. The stock drooped.

“2014 was a difficult year during which performance fell short of our expectations,” said president and CEO Don Thompson in a conference call with analysts.

The Oak Brook-based company earned $1.1 billion, or $1.13 per diluted share, in the fourth quarter ended December 31, compared with $1.4 billion, or $1.40 per diluted share in the year-earlier quarter.

Summary of McDonald's Corp. fourth quarter earnings report/Alysha Khan/Medill
Summary of McDonald’s Corp. fourth quarter earnings report (Alysha Khan/Medill)


Analysts surveyed by Bloomberg expected $1.22 per diluted share.

Revenues fell 7 percent to $6.6 billion from $7.1 billion in the year-earlier quarter. Sales at locations open at least 13 months fell 1.7 percent in the U.S. and 0.9 percent globally, slightly better than what analysts expected.

Sara H. Senatore, senior analyst at asset management firm AB Bernstein, wrote in a research note that the earnings report was not as bad as investors feared. However, she cautioned that investors may still have “mixed feelings” about the stock, especially since there isn’t a clear driving force that could revitalize U.S. store sales.

The stock fell $1.33, or 1.5 percent, to $89.56, in Friday trading on the New York Stock Exchange.

On the conference call, Chief Financial Officer Peter Bensen said sales were negatively impacted by sluggish U.S. sales, supplier issues in the Asia-Pacific region and political instability in Russia and Ukraine.

In July, McDonald’s cut ties with its Chinese poultry supplier after allegations that the supplier mixed fresh and expired meat. Earlier this month, the fast food chain apologized after Japanese diners discovered objects in their food, including plastic and a tooth.

The Russian government also briefly shut down more than 200 stores, about half of the locations McDonald’s has in the country.

“While we expect to move beyond some of these unique events of last year, certain challenges remain,” Bensen said.

For the coming fiscal year, McDonald’s plans to cut its capital expenditure budget by nearly $1 billion to approximately $2 billion by decreasing the number of new stores opening in China, Russia, Germany and the U.S.

Company officials said the chain will also be emphasizing greater burger customization and experimenting with self-order kiosks, table service, and mobile ordering to improve sales at U.S. locations.

“It has the potential to lift sales of core classics by bringing more customers into our restaurants,” Thompson said.

For the full year 2014, McDonald’s reported earnings of $4.75 billion, or $4.82 per diluted share, down 15 percent from the year-prior $5.6 billion, or $5.55 per share. Revenue declined to $27.4 billion from $28.8 billion.

Photo at top: A McDonald’s location in Evanston, Illinois. (Alysha Khan/Medill)