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18/10/01 . Vanessa Valkin . Financial Times . New York
McDonald's sees signs of recovery in Europe
McDonald's, the world's biggest burger chain, said on Thursday that third quarter earnings slipped one per cent, coming in at the lower end of expectations, despite improving sales in Europe as consumer concerns about the safety of European beef continue to wane.
The result follows Wednesday's announcement that McDonald's will eliminate 500-700 jobs as part of an ongoing reorganisation of its operations and the reduction of its US regions from 37 to 21. Analysts said the restructuring would not affect the business immediately and any impact will be seen over time.
"Either way, the restructuring is not a huge deal in terms of either strategic or financial implications," said John Ivankoe, analyst at JP Morgan.
Company executives said in a conference call on Thursday that the reorganisation was not primarily a cost-cutting initiative. A significant amount of savings will flow into the bottomline and a significant portion will be reinvested.
Further details on what the cuts will mean for the outlook for 2002 will be provided at the biennial analyst meeting at the end of this month.
When McDonald's last cut a similar number of jobs in 1998, it led to savings of $100m.
Earnings per share on a reported basis came in at 42 cents a share, or $545.5m, from 41 cents a share, or $548.5m, a year ago. This includes a $137.1m after-tax gain related to the initial public offering of McDonald's Japan, as well as an $84.1m after-tax charge after the company closed 154 under-performing restaurants. It also takes into account fewer outstanding shares this year as McDonald's continues its share buyback program.
Looking to the fourth quarter, McDonald's said earnings should be flat, at 34 to 36 cents a share. This figure falls slightly below the consensus estimate of 36 cents a share and will exclude the impact of special charges related to the cuts.
Analysts said that next quarter is less likely to hold anynegative surprises since quarterly comparisons will be with last year's softer numbers when fears of mad-cow disease were at a height in Europe.
Total sales for the third quarter, including company-operated and franchised
restaurants, rose 1 per cent to $10.63bn from $10.51bn a year ago. Operating
income declined 18 per cent to $746.6m from last year's $910.8m.