(Bloomberg) McDonald’s Corp., the world’s largest restaurant company, said sales of breakfast sandwiches helped lift first-quarter earnings 3.5 percent even as a stronger dollar ate into revenue outside the U.S.
More-profitable morning meals, along with drinks and chicken sandwiches, bolstered U.S. sales at stores open at least 13 months by 4.7 percent, the company said today in a statement.
“They’re selling more higher-margin items,” Tom Forte, an analyst with Telsey Advisory Group in New York, said in a phone interview. “Breakfast carries a higher margin than lunch or dinner; chicken can be higher-margin than beef.”
Breakfast Competition
McDonald’s has met or exceeded analysts’ estimates in each of the past 11 quarters, according to Bloomberg data. The stock price has fallen on the day it reported earnings for 10 of those quarters.
“They’re a victim of their own success,” said Steve West, an analyst with Stifel Nicolaus & Co. in St. Louis who recommends buying the stock. “They’ve been outperforming expectations for so long.”
Chief Executive Officer Jim Skinner has added McCafe espresso-based coffees to about 70 percent its 14,000 U.S. stores to compete with Starbucks Corp. and Dunkin’ Donuts Inc. More than half of McCafe sales occur in the morning, Chief Operating Officer Ralph Alvarez said today on a conference call.
McDonald’s is facing breakfast competition as rivals, including Starbucks and Dunkin’ Donuts, seek a larger slice of the fastest-growing part of the restaurant day. Egg McMuffins, hotcakes and hash browns account for about a quarter of McDonald’s sales, and the company is broadening its coffee selection. Breakfast sales are rising in Europe as the chain extends opening hours at some stores, McDonald’s said.
Breakfast Rivals
“Breakfast has continued to contribute to our success here in the United States, and wherever we’re selling breakfast around the world,” Skinner said on the call. The morning menu has been heavily advertised this year, he said.
Seattle-based Starbucks last month introduced deals pairing egg sandwiches and pastries with its coffee and lattes. Dunkin’ Donuts added egg dishes on waffles instead of bread. Wendy’s/Arby’s Group Inc. is reworking its breakfast menu for a national rollout in 2011.
McDonald’s is also introducing a premium Angus burger in the U.S. later this year. The more expensive item, in line with traditional sandwiches such as the Quarter Pounder and Big Mac, is aimed at balancing sales of the chain’s $1 cheeseburgers and fries.
