McDonald's Q1 profits are down 16%. Hit by flagging Asian economies, adverse currency effects and consumer health concerns, McDonald's first quarter results were not overly positive. Despite the $378 million profit being in line with reduced expectations after last month's profit warning and the company's apparent optimism for the second half of the year, there is little substantive evidence to reassure investors.

McDonald's hasn't had much luck lately. It has been troubled by consumer concerns about beef safety throughout Europe, first because of Mad Cow Disease and now from the extent of the foot-and-mouth outbreaks. Combined with adverse currency effects and weaker Asian economies, McDonald's Q1 profit was down 16% from the same quarter last year. McDonald's expects the next quarter to be challenging, as it fights to reassure European consumers of the safety of its products and boost sales elsewhere.

McDonald's warned of disappointing results last month, and the $378.3 million profit, 29 cents per share, was in line with the reduced expectations. This compares to $450.9 million or 33 cents per share in Q1 last year. This is the second consecutive quarter that the company has seen its earnings decline.

Despite this, company executives voiced a note of optimism saying there are signs pointing to a recovery, such as improving beef sales in France. McDonald's has also announced expectations of 6-10% annual earnings growth for 2001.

US sales grew 4% from last year, helped by a strong promotional push in response to marketing efforts by rival Burger King. They were also assisted by McDonald's aim to expand the variety of food on offer with its Big'N'Tasty sandwich and New Tastes menu. But the extra offerings may prove to be more important in Europe. The prevalent health fears have already led to the launch of non-beef alternatives in some parts of Europe, with McDonald's restaurants now selling pork burgers and cheese and ham toasted sandwiches. Sales of these products have been promising, and should help the company weather the current period of consumer wariness.

But the growth targets may still be too ambitious. McDonald's must overcome difficulties with current economic climates and consumer attitudes to its products and these are not issues that are likely to go away overnight.

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