McDonald's earnings edge lower on tepid global sales

McDonald's Tuesday said profit slipped in the second quarter amid fairly flat global sales as it pledged to take action against any wrongdoing in an Asian food safety scare.

McDonald's posted net earnings for the second quarter of $1.39 billion, down 0.7 percent from the year-ago period.

That translated into adjusted earnings per share of $1.40, four cents below expectations.

The US restaurant chain characterized global comparable sales as "relatively flat" with lower consumer traffic in all major segments.

Comparable sales dropped 1.5 percent in the United States and 1.0 percent in Europe, while they grew in the Asia/Pacific, Middle East and Africa segment by 1.1 percent, due in part to strong performance in China and some other markets.

All three regions reported drops in comparable sales in June.

"We are clearly moving with a sense of urgency," said chief executive Don Thompson in a conference call with analysts after the latest in a series of disappointing quarters.

Measures under way include beefing up staffing at peak service times such as breakfast and increasing marketing campaigns in regions like Germany that have been especially weak.

The company is also working to improve customization of products, boost the number of condiments offered and increase digital engagement.

McDonald's is aiming for "holistic solutions" that improve the system and produce results that are not "a flash in the pan," he said.

Analysts expressed concerns about the drop in sales in the US, which accounts for about 30 percent of McDonald's revenues. The restaurant giant believes some of the drop is due to lower sales from customers who make $40,000 a year or less.

"Clearly the economy is a bit of a concern" in the US, Thompsons said.

Global revenues rose 1.4 percent to $7.18 billion, below the $7.29 billion projected by analysts.

Thompson said McDonald's is cooperating with Chinese authorities who are investigating US food supplier OSI Group after Shanghai authorities on Sunday shuttered an OSI plant for mixing expired meat with fresh product.

McDonald's said it had immediately stopped using the products from Shanghai Husi Food Co.

Thompson said McDonald's has regular audits of its suppliers, but "in this case, we do feel we were a bit deceived with respect to one of these plants."

If the investigation shows "higher level" responsibility for the problem, we "will deal with that effectively, swiftly and appropriately," Thompson said.

McDonald's continues to have confidence in the business model of employing outside meat suppliers, the CEO said.

"We enjoy and have benefited from what we call the three-legged stool which is a supply chain as a separate entity just as our franchisees are a separate entity other than McDonald's Corporation," he said.

"They've grown with us in multiple countries around the world. They understand our expectations."

Dow component McDonald's fell 1.4 percent to $96.17 in afternoon trade.