McDonald's earnings 'hit by mad cow scare'

McDonald's earnings 'hit by mad cow scare'

June 16, 2001 Financial Times (London) by Mariko Sanchanta

McDonald's yesterday warned that earnings for the second quarter would be lower than initially expected, citing lingering consumer fears in Europe over "mad cow" disease and the strong US dollar.

Analysts, however, downplayed the impact of "mad cow" on the company's earnings. "The media attention towards mad cow disease is subsiding, and consumer confidence in Europe is starting to return," said Peter Oakes, vice-president at Merrill Lynch, who toured McDonald's facilities in Europe last week. Europe accounts for about a quarter of McDonald's sales.

In its second consecutive warning this year, the world's largest fast-food chain said it now expected earnings per share to range between 34-35 cents.

Wall Street expected the company to earn 38 cents, according to Thomson Financial/First Call.

In the first five months of this year McDonald's said that sales in Europe rose 2 per cent; 3 per cent in the US; and 7 per cent in Asia, excluding the impact of foreign currency conversions.

McDonald's said it expected its full-year earnings per share to be reduced by about 6 cents if foreign currency exchange rates remained constant.

It also said it would reduce capital expenditures in Latin America and Asia, where the economies remained sluggish.

Meanwhile, analysts were sceptical over speculation that the group would spin off its Dollars 8bn portfolio of property and equipment on a tax- free basis, following a recent decision by the US Internal Revenue Service. McDonald's is one of the largest real estate owners among American companies.

Mark Kalinowski, analyst at Salomon Smith Barney, said: "The spin-off would be extremely complicated."

By lunchtime in New York, McDonald's shares were 3 per cent lower at Dollars 29.05.

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