In a surprise among all of the corporations reporting their second quarter figures, the world's largest hamburger chain McDonald's saw its net income fall by approximately four percent with much of the blame falling on foreign exchange rates.
Not everyone in the United States is craving a Big Mac, despite its menu designed to help households with small budgets. In its second quarter report, McDonald’s reported a drop in sales and profits for the three-month period ending Jun. 30.
The world’s largest fast food chain announced Monday in its quarterly earnings report that its net income fell by four percent. Global sales at restaurants that are open at least one year jumped only by 3.7 percent, which is the lowest since the fourth quarter of 2009 when the sales figures saw only a 2.3 percent rise.
Similar to other companies in the U.S., McDonald’s was hit hard due to a stronger dollar and inauspicious currency exchange rates – multi-national corporations struggle when the dollar is higher and they have to convert to local currencies.
Furthermore, it’s not just the exchange rates that are hurting the Oak Brook-based fast food chain, it’s the inflation numbers. The company is facing even higher costs for both labour and and ingredients. McDonald’s warned in its earnings that it expects commodity prices to soar between 3.5 percent and 4.5 percent for the remainder of the year.
“McDonald's global comparable sales remained solid for the quarter while overall results reflected the slowing global economy, persistent economic headwinds and the investments we've made to enhance restaurant operations and provide customers the everyday value they have come to expect from McDonald's," said Don Thompson, McDonald's Chief Executive Officer, in the news release.
"Our System alignment and ongoing commitment to our global priorities of optimizing our menu, modernizing the customer experience and broadening accessibility to our brand will help us navigate the current environment as we continue to build our business and our brand. As we begin the third quarter, global comparable sales for July are expected to be positive, but less than second quarter."
Europe was able to generate 3.8 percent operating sales growth with the United Kingdom, France, Germany and Russia contributing greatly. Its market in Asia/Pacific, Middle East and Asia (APMEA) posted only a sales increase of 0.9 percent in the last quarter with Australia and China providing strong performances.
“McDonald's has a resilient business model, strong System alignment around the Plan to Win and experience in a variety of economic cycles," added Thompson. "While the environment has become more challenging, we continue to see significant opportunities to further differentiate and grow the McDonald's brand. We have the resources and discipline to invest for the long-term benefit of our System and our shareholders."
Following the report, shares of McDonald’s were down nearly three percent, or $2.17, at $89.41