McDonald's Corp. said on Friday sales trends in Europe and the United States were improving and its expectations for a recovery in earnings in 2002 were on track.

The forecast from the world's No. 1 restaurant company soothed investors' concerns that mad cow disease in Europe and Japan, together with stiff competition in the United States, could endanger a turnaround.

McDonald's stock closed 4.5 percent higher on Friday, making it the best performer in the Dow Jones industrial average.

"It's confirming expectations after a number of (negative) surprises from the company," said Timothy Ghriskey, senior partner of Ghriskey Capital Partners, a Greenwich, Connecticut money management firm where McDonald's is a core holding.

"When you've had such a long string of bad news from the company and you finally get news that things aren't getting any worse, it's viewed as a positive," he said.

McDonald's said it expects 2002 earnings of $1.47 to $1.54 a share, in constant currencies, reflecting its October forecast of 5 percent to 10 percent growth, and including a 2-cent per share benefit from an accounting change.

Oak Brook, Illinois-based McDonald's has suffered four consecutive quarterly earnings declines, beginning in last year's fourth quarter when outbreaks of mad cow disease, a fatal animal disorder, weakened demand for hamburgers in Europe. Cases of mad cow were recently found in Japan, leading to similar consumer concern that has hurt McDonald's sales there.

The company said it expected fourth-quarter earnings of 34 cents per share before one-time items. That is in line with its earlier projection of 34 cents to 36 cents, though just below the Wall Street consensus of 35 cents, according to market research firm Thomson Financial/First Call.

The current quarter's earnings have been hurt by weak Asia-Pacific economies and the Japanese mad cow concerns. But some analysts said investors were relieved that the fourth-quarter outlook was essentially in line with prior guidance.

European sales in the first two months of the fourth quarter were up 8 percent, excluding the impact of foreign currency exchange, McDonald's said. The shift seems to demonstrate that consumer concerns about food safety are easing, analysts said.

Sales at stores open at least one year in the region, a key indicator of operational health, were up in the low-single-digit range for the first two months in the quarter, executives told analysts during a Friday teleconference.

In the United States, where McDonald's has been trimming overhead and providing more headquarters support to regional divisions, sales rose 2 percent, the company said. The U.S. market, McDonald's largest, has faced increased competition from Burger King Corp. (quote from Yahoo! UK & Ireland) and others in recent months.

Same-store U.S. sales were trending slightly lower than a year ago, executives said, but improvement was expected for December. The company is running value promotions in about one-fifth of the United States, including a 99-cent Big Mac special in the highly competitive Southern California market.

HOLDING THE LINE SEEN AS POSITIVE

Shares of McDonald's were up $1.07, or 4 percent, to $26.80 in mid-afternoon New York Stock Exchange trade, rebounding off a seven-month intraday low of $25.15 set Wednesday. The stock, which earlier on Friday touched $27.07, or a 5 percent gain, is off about 20 percent this year.

"Everyone thought they were going to miss," said Deutsche Banc Alex. Brown analyst John Glass, of the fourth quarter. "It's a relief rally."

The company said it is trying to combat mad cow concerns by advertising that it does not use Japanese beef. Quarterly sales through November in Japan were down 12 percent on a constant currency basis, executives said, while comparable-store sales for the entire Asia-Pacific region were off in the low-double-digit range. Outside Japan, mad cow is not affecting Asian sales, McDonald's said.

Including pretax charges of $235 million to $245 million, fourth-quarter earnings per share are expected to be 21 cents to 22 cents. About $200 million of the charges were expected and relate to employee severance, outplacement and other restructuring costs, primarily in the United States.

McDonald's said it would take charges of $35 million to $45 million for the expected sale of its 43 Aroma Cafe restaurants in Britain and unrecoverable costs related to fraud in connection with a Monopoly game promotion and the termination of supplier Simon Worldwide. The charges will be split roughly evenly between those two items, executives said.

In the Monopoly fraud, 33 people have been indicted over an alleged scheme to bilk the company out of millions of dollars by fixing several of the chain's promotional games.  
 
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