McDonald's profit climbs 27% on worldwide sales

McDonald's MCD said Friday that its third-quarter earnings jumped 27% on rising sales of everything from coffee and breakfast items to hamburgers and snack wraps, with help from the weak dollar.

The earnings, in line with preliminary results released last week, keep the world's largest restaurant chain on a sustained roll around the globe.

Net income for the July-through-September period was $1.07 billion, or 89 cents a share, up from $843.3 million, or 68 cents a share, in the third quarter 2006.

Excluding an after-tax gain of 6 cents a share from the sale of its Boston Market franchise, the company said its earnings were 83 cents a share.

That was in keeping with the revised expectations of analysts polled by Thomson Financial, who upgraded their estimates after McDonald's disclosed stronger-than-expected preliminary numbers Oct. 12.

Revenue was $5.9 billion, up 7% from $5.5 billion a year ago but slightly below the $6.04 billion expected by analysts. The weak dollar boosted revenue significantly; excluding currency translation, revenue was up just 3%.

The company cited "industrywide commodity and labor headwinds" as weighing on results — a reference in part to soaring costs of commodities such as cheese. As a result, its U.S. operating margins declined 0.6% to 18.4% after also slipping in the first half.

But continuing momentum came from strong global same-store sales, those from restaurants open at least 13 months. Those sales rose 6.9% and increased for a seventh quarter.

"With the U.S. still delivering solid sales growth and Europe's turnaround story powering recent results, McDonalds is on a roll," Morgan Stanley analyst Mark Wiltamuth said in a research note.

The U.S. market, McDonald's biggest with nearly 14,000 restaurants, remained at the forefront of its surging sales, with an 18th consecutive quarter of higher same-store sales, up 5.1%.

The company credits breakfast items, chicken snack wraps and coffee for the latest U.S. gains. McDonald's coffee sales have risen 20% since it introduced a higher-priced premium roast coffee in March 2006.

The biggest increases in the most recent quarter, however, were in its Asia/Pacific, Middle East and Africa division, where same-store sales climbed 11.4% — most in 10 years. European restaurants also performed well in the quarter, with same-store sales rising 6.5%.

"Our strategic focus on building the McDonald's business by being better, not just bigger, and our global Plan to Win have combined to create enduring business momentum," CEO Jim Skinner said. "By offering menu innovations and everyday conveniences that address the needs of our on-the-go customers, we are keeping our brand relevant and in demand."

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