McDonalds Meets Estimates with First Quarter Profits

It was revealed on Friday that McDonalds MCD reported impressive quarterly numbers. Net income rose 7% to $1.27 billion, or $1.23 per share. That's up from $1.21 billion, or $1.15 per share the previous year. Quarterly sales at restaurants open a minimum 13 months rose 7.3%, which bettered the 6.7% increase expected by analysts. MCD has succeeded by rolling out popular new menu items like the coffee frappes and fruit smoothies, both of which have high profit margins and encourage custom during the working day, plus they are relatively cheap. The chain also recently added oatmeal and Chicken McBites, both of which proved successful too. Sales in Europe, MCD's biggest market, went up 5%, while sales in Asia Pacific, Middle East and Africa rose 5.5%, led by China, Australia and Japan. "McDonald's continued momentum in first quarter drove market share gains and profitability across all geographic segments," said CEO Jim Skinner. "The ongoing strength of McDonald's results, amidst persistent economic headwinds, is a testament to our customer-focussed plans and our proven business model. We remain committed to the global priorities that are most impactful to our customers - evolving our menu, modernizing the customer experience and broadening accessibility to our Brand." Skinner added that sales for April are expected to be roughly 4%. On April 18, while previewing the MCD results, Sterne Agee said in a research report that its March forecast is +7.0% on a global basis (U.S. +8.5%, Europe +4.2%, and AMPEA +6.7%), as weather was generally warmer than average on a global basis (including a significant weather improvement in Europe) and its estimate includes a 200 bps benefit from trade days shifts. In terms of margins, Sterne Agee is projecting a restaurant operating margin of 18.0%, an expansion y/y of 30 bp primarily due to positive sales leverage offset somewhat by commodity & labor inflation (particularly in the U.S). While it recognizes that MCD faces unique cost challenges in '12 (COGS & SG&A), it remains confident that the Company will continue to lead the QSR industry in terms of SSS performance given superior marketing power, an entrenched value perception, menu innovation and upgraded facilities. Follow me @BCallwood.