McDonald’s Profit Up 7%, but Shares Get Hammered

McDonald’s Corp. reported a 7% increase in profit for the second quarter Monday, but Wall Street pounded the fast-food giant’s stock after the company warned investors of weaker performance for the rest of the year.

The hamburger chain said it earned $468.8 million, or 66 cents a diluted share, up from $438.2 million, or 61 cents, in the year-ago period. Total sales rose 9% to $9.25 billion.

U.S. operating profit rose 15% before a one-time charge, the biggest quarterly increase since 1984. But that “exceptional strength” will not continue, McDonald’s warned. The U.S. surge was helped by its Teenie Beanie Baby and Monopoly promotions.

The company held out little hope that its foreign business will pick up the slack, saying “economic difficulties” will last through the year in Asia.

The stock tumbled $2.69 to $70.56 on the New York Stock Exchange.

The latest results exclude a charge of $235 million, or 33 cents a share, for the cost of a new food-preparation system and to reduce jobs and other costs at its Oak Brook, Ill., headquarters. There were no special items in the year-earlier period.

“The successful Monopoly and Teenie Beanie Baby promotions, combined with local market initiatives, contributed to the exceptional strength of the second quarter,” said Alan Feldman, incoming president of the McDonald’s USA division. “As we face tougher comparisons in the second half of the year, it is unlikely we will sustain this level of performance.”

But Chief Financial Officer Michael Conley said Feldman was referring to U.S. results. Despite tougher comparisons going forward, “we expect to have a good year” overall, Conley said.

He declined to comment specifically on analysts’ earnings estimates of $2.51 a share for 1998. However, he said, “If they’re out of line, we let them know, and we haven’t let them know.”

At a Glance

Other earnings, excluding one-time gains and charges unless noted:

* Bank of New York Co. said second-quarter earnings rose 9.7% to $295 million, or 75 cents a diluted share, meeting analyst forecasts, on growth in its securities processing businesses. Noninterest income rose 15%, led by fees from securities processing. Net interest income fell 15%, as the bank’s net yield on interest-earning assets decreased to 3.30% from 4.16%.

* Ben & Jerry’s Homemade Inc. said its second-quarter profit rose 16% to $2.13 million, or 28 cents a share, on a 16% increase in sales to $58.7 million. The company said new ice cream flavors, such as one named after the “Dilbert” comic strip character, boosted results beyond analyst estimates of 26 cents.

* Continental Airlines Inc. said second-quarter earnings jumped 30%, to $167 million, or $2.11 a diluted share, exceeding analyst expectations of $2.01 a share. Revenue rose 14% to $2.04 billion.

* GTE Corp. reported second-quarter earnings of $673 million, or 69 cents a diluted share, compared with $671 million, or 70 cents, a year earlier. GTE was expected to earn 70 cents, based on analysts surveyed by First Call Corp. The company had more shares outstanding in the recent quarter, which reduced the per-share earnings. Sales rose 10% to $6.28 billion. Strong revenue growth offset wider losses in its new data operations.

* Host Marriott Corp. said its second-quarter earnings from operations rose 35% to $115 million, or 51 cents a share, a penny higher than analysts’ average estimates, on new acquisitions and higher room rates at its Marriott and Ritz-Carlton brand hotels. Revenue climbed 94% to $787 million.

* Inland Steel Industries Inc. said second-quarter profit fell 29% to $28.4 million, or 51 cents a diluted share, on lower steel prices, as sales slipped 1.2% to $724.9 million. Analysts had expected 54 cents a share.

* Lear Corp.’s second-quarter earnings rose 7.5% to $65.7 million, or 96 cents a diluted share. Sales jumped 18% to $2.18 billion, as sales in Europe climbed 37% and domestic sales rose 9%. The maker of auto seats and other interior auto parts said the strikes against General Motors parts plants in Michigan trimmed 14 cents a share from its earnings.

* Net.Bank Inc. became the first Internet bank to turn a profit, meeting analyst estimates of $240,000, or 4 cents a share, for the second quarter, compared with a loss of $1.4 million, or $1.11 a share, a year ago. Net.Bank’s net interest income rose to $1.5 million from a loss of $37,000 and noninterest income rose to $104,000 from zero.

* Schlumberger Ltd. said its second-quarter net income rose 17% to $359.4 million, or 69 cents a diluted share, a penny less than analysts expected. The oil service company’s revenue rose 10% to $2.9 billion.

* Southern Co.’s second-quarter net income increased 26% to $270 million, or 39 cents a share, exceeding the average estimate of analysts by 5 cents. The nation’s largest electricity producer said revenue rose 7% to $2.9 billion.

* Temple-Inland Inc. said second-quarter earnings more than doubled to $34.6 million, or 62 cents a diluted share, from $15.6 million, or 28 cents, a year ago, as its paper-making unit rebounded to a profit from a year-earlier loss. The results far exceeded the 53-cent average estimate of analysts. Revenue rose 3.6% to $940.7 million.

* Tupperware Corp.’s second-quarter profit fell 40% to $23 million, or 39 cents a share, matching analyst estimates, as sales fell 17% to $282.9 million.

* Warner-Lambert Co. said second-quarter profit surged 46% to $338 million, or 40 cents a diluted share, 3 cents higher than the consensus estimate of analysts. The pharmaceutical company, which also produces consumer products such as Dentyne gum and Schick razors, said sales jumped 30% to $2.56 billion. Worldwide sales of prescription drugs soared 71%, as U.S. sales more than doubled.