McDonald's earnings fall; changes afoot to woo customers

McDonald’s isn’t lovin’ it, and it’s going to do something about it.

The world’s largest hamburger chain reported falling earnings and sales for its fourth quarter on Friday and says it is going to take action this year to save money and bring customers back. This includes slowing down new restaurant openings in some markets.

The Oak Brook company’s stock rose slightly in morning trading because its earnings beat Wall Street expectations.

An important sales measure fell in all of McDonald’s major markets because of economic uncertainty, a food-safety scandal in China and the changing tastes of diners.

Chief financial officer Peter Bensen said in a statement that McDonald’s has a 2015 capital expenditure plan of about $2 billion and is targeting fewer restaurant openings in its most challenged markets.

“We believe this lower level of capital spending is prudent while we work to regain our business momentum and improve the sales and profitability at our more than 36,000 restaurants around the world,” he said.

For the period ended Dec. 31, McDonald’s earned $1.1 billion, or $1.13 per share. That compares with $1.4 billion, or $1.40 per share, a year earlier.

Excluding 9 cents per share for a supplier issue, earnings were $1.22 per share.

The results beat Wall Street expectations. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of $1.20 per share.

Revenue fell to $6.57 billion from $7.09 billion. This fell short of the $6.73 billion that analysts polled by Zacks expected.

Sales at locations open at least 13 months edged down 0.9 percent on weaker traffic. In the U.S., the metric declined 1.7 percent on fewer customer visits, tough competition and increased expenses.

Since late 2012, McDonald’s has twice replaced the president of its flagship U.S. division while fighting to hold onto customers. The company is dealing with competition on a number of fronts, including convenience stores that are selling more food and smaller chains such as Chipotle that market themselves as being of higher quality.

In hopes of changing negative perceptions about its food, McDonald’s recently invited customers to ask questions about its ingredients and sourcing. It also launched a new marketing campaign intended to play up the “loving” in its “I’m Lovin’ It” slogan and associate its name with that positive emotion.

The company is also trying to simplify its menu, and offer people greater flexibility in customizing orders. It plans to offer an option that lets people build their own burgers on a touchscreen in 2,000 of its 14,000 restaurants sometime this year.

McDonald’s is also simplifying its menu and focusing more on local tastes to bring customers back.

In Europe, sales at locations open at least 13 months fell 1.1 percent, hindered by softness in France and Germany and consumer confidence issues in Russia and the Ukraine.

The figure dropped 4.8 percent in the Asia-Pacific, Middle East and Africa segment because of the impact of a supplier issue on sales and profitability in China, Japan and some other markets.

Last year an undercover TV report in China showed one of McDonald’s major suppliers repackaging meat that was alleged to be expired. The claim has not been publicly confirmed by the supplier or the government. The plant stopped operations, and many of McDonald’s restaurants in the country were left unable to sell burgers, chicken nuggets and other items. The chain’s reputation took a hit as well.

Bensen said that McDonald’s is still on track with its goals for 2014 through 2016. These include returning $18 billion to $20 billion to shareholders through dividends and stock buybacks; refranchising at least 1,500 restaurants and reallocating resources to higher growth initiatives.