The weakened outlook follows five straight quarters of earnings declines for the world's biggest chain restaurant operator. For more than a year, it has struggled with sales slumps after outbreaks of mad cow disease in Europe and Japan, while trying to boost sales in the mature U.S. market.

"I thought the update was disappointing, both from an earnings perspective and from a sales perspective," said Bear Stearns restaurant analyst Joe Buckley.

Shares of McDonald's ended Friday down 3.7 percent, or $1.05, to $27.65 on the New York Stock Exchange (news - web sites), its biggest drop since late October 2001.

McDonald's forecast quarterly earnings per share between 29 cents and 30 cents, excluding charges. Wall Street's consensus estimate for the quarter is 31 cents, according to 18 analysts polled by research firm Thomson Financial/First Call.

The company said it expects to take two noncash charges in the first quarter, which it said will reduce net earnings per share by 11 cents.

The first -- of $45 million -- is for the impairment of assets in Latin America and closing down 32 underperforming restaurants in Turkey, where it currently operates 98 restaurants.

The second charge -- expected to be $100 million -- comes from an accounting change for the treatment of goodwill. The impaired goodwill is mainly for Latin America, where economies have "weakened significantly" in the last several years, said the company.

In the year-earlier quarter, McDonald's posted net income of $378.3 million, or 29 cents per diluted share.

Even before the charges, though, McDonald's said annual earnings per share, on a constant currency basis, would come at the low end of its Jan. 24 guidance of $1.47 to $1.54.

After a 2-cent impact from a strong U.S. dollar, earnings would be at the low end of a range of $1.45 to $1.52 per share. First-quarter results will be lowered by as much as a penny, it said.

MAD COW LINGERS IN JAPAN; EUROPE REBOUNDS

The Oak Brook, Illinois-based company said it expects sales to increase 6 percent to 7 percent for the year, excluding the impact of weaker foreign currencies. In the first two months this year, systemwide sales rose 3 percent in constant currencies to $6.2 billion.

This year, it said it plans to open from 1,300 to 1,400 new restaurants globally, adding to the more than 30,000 restaurants it already operates.

In Europe, McDonald's said it anticipates a high single-digit sales increase, excluding special charges, on a constant currency basis. Sales climbed 8 percent in the first two months this year in Europe, where fears of mad cow disease have mostly subsided.

However, sales in the first two months of 2002 declined 2 percent in the segment comprising Asia, the Mideast, and Africa. Most of the impact came from Japan, where same-restaurant sales tumbled into the low teens after the country reported its first case of mad cow disease last September.

"We still haven't seen the improvement we've hoped for," said a company executive in a conference call announcing the outlook. He added that it expects that near-term results in Japan would be "negatively impacted" by mad cow fears.

In the United States, McDonald's projected sales to increase in the low-single digits for the quarter, and in the mid-single digits for the year. In the first two months this year, U.S. sales grew 3 percent.

The company also outlined a plan to improve customer service in the United States, where its restaurants have suffered from low customer satisfaction scores and a perception of bad service. The plan involves using restaurant reviews, random checks by "mystery shoppers," a toll-free customer satisfaction phone line, and employee feedback to improve service, said executives during the call.

Sales in the first two months this year fell 3 percent in Latin America, which continues to be dogged by weak economies.

Given the disappointing outlook, some analysts wondered how McDonald's would achieve its aim to increase sales between 6 percent to 7 percent this year.

"Even if Japan improves, same-store sales will likely remain negative in the next several months, so an improvement doesn't mean business will be back to normal," said Salomon Smith Barney analyst Mark Kalinowski.

"I think their target of 6 to 7 percent lies on the assertive side. I would take that with a grain of salt," Kalinowski added.  
 
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