McDonald's Expects Sales to Finally Grow in Current Quarter

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By Lisa Baertlein

The new chief executive at McDonald's (MCD) expects global sales at established restaurants to grow in the current quarter, reversing more than a year of declines, and said his turnaround plan is showing early signs of taking hold.

The world's biggest fast-food chain, which popularized burgers and french fries, is battling nimble rivals who are doing a better job of meeting consumers' growing appetite for fresher, less processed food.

Since taking the helm in March, McDonald's CEO Steve Easterbrook repeatedly has vowed to turn McDonald's into "a modern, progressive burger company."

%VIRTUAL-pullquote-While our second quarter results were disappointing, we are seeing early signs of momentum.%Easterbrook, who debuted his turnaround plan in May, said Thursday: "While our second quarter results were disappointing, we are seeing early signs of momentum."

But McDonald's still has a long way to go.

Net income tumbled 13 percent to $1.2 billion, or $1.26 a share, in the second quarter. Total revenue fell 10 percent to $6.5 billion.

Global sales at McDonald's restaurants open at least 13 months fell a slightly steeper-than-expected 0.7 percent in the quarter that ended June 30, due to a drop in traffic in all major markets.

Same-restaurant sales in the United States, McDonald's No. 1 profit market, were down 2 percent in the latest quarter as customer visits fell and featured products and promotions missed their mark.

Easterbrook has responded to intense U.S. competition from rivals such as Chipotle Mexican Grill (CMG), Chick-fil-A and "better burger" chains like Shake Shack (SHAK), by experimenting with custom burger toppings, regional menus and breakfast all day.

McDonald's U.S. restaurants also plans to switch to chicken raised with fewer antibiotics and revamp its national value menu.

The chain's U.S. restaurant operators, many of whom are grappling with significant renovation debt and slumping sales, have urged Easterbrook to move more aggressively on his plan to simplify McDonald's large menu.

Analysts noted McDonald's global same-restaurant sales had dropped a steep 3.3 percent in the third quarter of 2014, suggesting it should be easy for the company to show year-over-year growth.

McDonald's, which already has cut jobs and begun closing underperforming restaurants, also is evaluating its capital allocation. That review will include dividend payments that make McDonald's shares popular with many investors.

As a result of the review, McDonald's is moving its annual dividend announcement to November from September, Chief Financial Officer Kevin Ozan said.

The dividend news erased early gains for McDonald's shares. At midday they were down 0.4 percent to $97.15.

-Siddharth Cavale contributed reporting from Bangalore, India.
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