Slow growth at McDonald's shows why consumer stocks are struggling

10/21/2013 7:44 pm EST


Jim Jubak

Founder and Editor,

McDonald’s (MCD) customers are getting squeezed and so, therefore, is McDonald’s.

For the third quarter, comparable store sales grew by just 0.7% in the United States. That’s down from 1% comparable store sales growth in the second quarter. Global comparable sales climbed by 0.9%. Wall Street had been expecting 1% growth.

McDonald’s did beat analyst earnings estimates of $1.52 a share by a penny but that wasn’t enough to offset a rather gloomy forecast for growth. In October, the company said, it expects flat comparable store sales. The shares finished down 0.64% at the close on October 21

In the United States new menu items such as pumpkin-spice lattes and Might Wings didn’t draw enough new spending to offset the company’s need to focus on value pricing as lower income customers continue to cut their spending. The problem seems to be worse, though, than at competitors. Wall Street analysts project that McDonald’s will grow revenue by just 2.4% in 2013, compared to the National Restaurant Association’s estimate of 4.9% growth for the U.S. quick-service dining sector.

Reflecting those problems, operating margin at McDonald’s company-owned restaurants fell to 18.7% in the quarter from 19.1% in the third quarter of 2012.

Unfortunately, the company’s U.S. customers aren’t the only ones feeling squeezed or the only ones cutting their spending. In Europe comparable store sales climbed 0.2% In the Asia/Pacific, Middle East and Africa region comparable store sales fell 1.4% in the quarter and operating income dropped 12%, mostly thanks to unfavorable exchange rates. (In constant currencies operating income fell just 4%.)

The company didn’t offer investors any immediate cheer. In the fourth quarter McDonald’s expects comparable store sales growth to be in line with results in recent quarters and margins would fall, the company said, at something like recent rates of decline. Commodity costs, up 2.5% in the third quarter in the United States, won’t help: For the full year commodity costs will climb 1.5% to 2%, the company said. Currency effects will take five to six cents out of 2013 earnings per share.


Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund , I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of McDonald’s as of the end of June. For a complete list of the fund’s holdings as of the end of June see the fund’s portfolio at

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