MCD's, YUM Forced to Lower Prices Overseas
Experiencing some of the worst numbers they have seen in many years, McDonald's (NYSE: MCD) and Yum! Brands (NYSE: YUM) have been forced into selling already inexpensive food for even less overseas. The fast food giants, used to satisfying the cravings of millions every day, have had to dish out Big Macs and fried chicken on the cheap in Asia.
With vending machine meals becoming more popular in China, it looks as though the country may no longer want to chew on salted fries and chicken nuggets – and this is not the only devastation Ronald McDonald is facing as of late. The food distributor has seen a decline in sales in Europe as well, with only 2.9% growth in the month of May.
So what has prompted MCD's and YUM's discounts regarding foreign domain? A slowing Chinese economy has affected the brands, just as the unstable European financial situation has too. According to Bloomberg, the nation's slowdown is only worsening, with government reports stating China's manufacturing expanded at the slowest pace last month since December.
Last ditch attempts to bring in customers have proven to be unsuccessful, with MCD's offering additional items on the menu along with value lunch prices. Not one to give up, the company is set to begin selling value dinners in China as well.
Research firms are paying no mind to the half-baked clean-up promotions, as they lowered estimates last week following the slow sales growth news.
“McDonald's May comps of +3.3% lagged the Street's +5.2% estimate, owing to lower than expected results in Europe, Japan and China. Analysis of 2-year trends suggests June comps could be in the -1% to +1% range, vs. the Street's +3% and our +0.8% estimate. We reduce 2Q and 2012 EPS forecasts to $1.39 and $5.56 from $1.45 and $5.69, respectively,” Oppenheimer stated on Friday.
While it is difficult to stroll down any main road in the world without seeing a large luminous “M”, China has become quite resistant to spending cash on fast food these days. As pressures continue to build with only a frail economy to back it up, MCD and YUM are sure to continue struggling overseas for the time being.
MCD closed Friday at $87.75, down 12.54% year-to-date, while YUM closed Friday at $64.59, up 9.46% year-to-date.
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