McDonald’s has announced Q2 profits down 16% from last year, in line with revised expectations. Continuing problems in Europe with the weak euro and lingering health worries were partly responsible for McDonald’s third consecutive quarterly earnings decline. Despite the company’s claims that the European sales climate is improving, it must increase trial and purchase of non-beef products to provide insurance against future scares, as well as to attract additional revenues.
McDonald’s has still not recovered from lingering concerns over the safety of beef in Europe. While total Q2 sales were up slightly, to $10.238 billion from $10.237 billion in the corresponding period last year, earnings were significantly down. Net income was down 16% to $441 million, or 34 cents a share, from $526 million, or 39 cents a share, a year ago. McDonald’s warned on the low earnings in June and the results came in as expected.
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McDonald’s has watched its profits slide amidst pressures from its international markets in particular. A year ago, Europe accounted for a quarter of its annual sales, but the strength of the dollar against the euro brought down profits. Combined with falling sales in some European countries on the back of mad cow disease fears, McDonald’s anticipated early on that it would be in for a bumpy ride.
European sales were down 2% for the quarter, falling from $2.33 billion last year to $2.27 billion. Operating income saw a sharper decrease of 11%, from $297 million to $264 million. However, the company was quick to point out that sales were starting to show improvements over the last quarter.
The picture was slightly better in McDonald’s largest market, the US, although figures were also down from the previous year. Sales fell slightly from $5.192 billion to $5.188 billion while operating income was down 1% from $482 million to $476 million.
McDonald’s looks likely to make some headway during the next quarter as consumers gradually become less wary of eating beef. But lessons learned from an over-reliance on beef products seem to have been learned. McDonald’s would do well to continue to work on developing sales from non-beef offerings over the coming years.
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