McDonalds CEO Jim Skinner
Paul Ziobro at CNNMoney.com reports that McDonald Corp.’s (MCD) fourth-quarter profit jumped 23%, topping Wall Street expectations as same-store sales rose in all its regions for the quarter. Of note is McDonald’s U.S. same-store sales returning to positive territory in December, rising 1%, and easing fears that high unemployment, poor weather and competitive discounting would keep the figure negative for a third consecutive month. January same-store sales remain positive globally, though we’ll look to see how that plays out by region.
It was more than two years ago when McDonald’s Corp. announced its McCafe initiative, a plan to bring better beverages into its stores. After the successful launch of its drip coffee and espresso drinks, the world’s largest burger chain is now setting its sights on the second phase of the plan — cold drinks like smoothies and frappes. CEO Jim Skinner updated investors on how the effort is progressing during an earnings conference call on Friday.
Notes from the call:
12:00 p.m.: It’s a (snack?) wrap. Skinner ends call as lunch hour kicks off. McDonald’s up 0.9%, dropping slightly throughout the call, to $63.92, though the Big Mac appears to be helping two rivals. Wendy’s (WEN) shares are up 2.2% and Burger King’s (BKC) shares are up 1.4%.
11:56 a.m.: Breakfast will stay cheap at McDonald’s, as Skinner says the Dollar Menu at breakfast is a permanent addition.
11:53 a.m.: McDonald’s will “keep the pedal to the metal” as far as it relates to promoting value across the world, says Skinner, adding that it is ” extraordinarily important for our customers to understand everyday affordability at McDonald’s exists in the good times and bad times.” That means don’t expect many price increases, as McDonald’s says it is losing pricing power, according to Skinner. While prices are running about 1% higher from a year earlier, that number will diminish as 2010 goes on.
11:43 a.m.: Fast food is a market-share battle, Bensen says, and to win that, you need some good value on the menu. McDonald’s has that, and is spending a greater percentage of its ad budget on value messages than in prior years. To keep its average customer check from “falling off a cliff,” though, McDonald’s presents a number of items to trade up, Bensen says. The Mac Wrap, for instance, can be a trade-up from the Dollar Menu, while new premium beverages are also check boosters. Don’t forget the Angus, too, McDonald’s $4 burger that delivers a juicy margin.
11:35 a.m.: Our McCafe project has gone very, very well for us. Certainly on the coffee side. We’re now into smoothies and frappes and introducing those into the restaurants. We’re well on the way with smoothies. …. We expect (them) to be ready to go in the summertime.
11:33 a.m.: Unemployment is bottling up any enthusiasm from budding signs of improved trends. Though consumer confidence may have edged up in recent months, Skinner says not to expect any “enormous pickups” in spending trends until people feel more confident that they won’t lose their jobs.
11:29 a.m.: U.S. trends getting better in January than they were in December, Skinner says, despite projection for a flat same-store sales for the month, compared with a 1% rise last month. Weather’s having a big impact so far. In China, McDonald’s is “cautiously optimistic”–a favorite term among restaurant operators now–that as consumers spend more there, the chain may get a bit of pricing power on its plate.
11:25 a.m.: As Q&A kicks off, Skinner says that customer traffic grew in every business last year, partly as it didn’t take as many price increases as in prior years. “Consumers today around the world deserve a break,” he said.
11:17 a.m.: McDonald’s got a lift from a lighter grocery bill, as its commodity costs fell 4% in the fourth quarter, helping lift restaurant margins. Margins in Europe, primarily from stronger sales, and APMEA also rose. Food and paper costs expected to be relatively flat in U.S. and Europe in 2010.
11:15 a.m.: CFO Pete Bensen takes over, noting that McDonald’s serves 60 million customers a day, a figure that’s risen 2 million over the past year.
11:12 a.m.: Some international highlights as we go globe trotting: McDonald’s is now the top seller of coffee in Germany; Australia remains “one of the top- performing markets; and China same-store sales turned positive in December, though it will still be some time before consumer confidence rebounds significantly.
11:09 a.m.: Skinner highlights both Mac Snack Wrap and Dollar Breakfast Menu as upcoming new products. The Mac Wrap has a “good margin” and fits into growing snack daypart, while bargain breakfast gives McDonald’s a “national voice on value in breakfast.” Free WiFi is also here, adding more value to customers, Skinner says.
11:06 a.m.: CEO Jim Skinner kicks off earnings call, noting that McDonald’s just capped off sixth straight year of positive comp growth. It’s starting off January in the same way, with positive same-store sales planned in Europe and the Asia/Pacific, Middle East, Africa region, and “relatively flat” in the U.S.
10:54 a.m. EST: McDonald’s giving its new Mac Snack Wrap center stage as the background to its Webcast presentation, as if its quarterly numbers aren’t enough to whet investor appetite. Reading into it, wrap, priced at $1.49, is the type of menu item that’s likely helping the chain offer an attractive value without eating into margins too much.
