Global General

McDonald's may raise prices as food costs rise

(Agencies)
Updated: 2011-01-25 10:08

PORTLAND, Oregon -?McDonald's affordable food drew even more customers in its fourth quarter, but the burger chain said it may raise prices this year as its own food tab rises.

A man walks out of a McDonald's restaurant in New York January 24, 2011. McDonald's Corp reported weaker-than-expected December sales at established US and European restaurants as poor weather hurt demand, and said its food costs would rise in 2011.??[Photo/Agencies]

Worries about rising costs at the world's largest hamburger chain gave some investors pause even as McDonald's ended a banner year in which it outperformed its competitors. Its emphasis on low-priced items and an expanding menu, including the limited-time McRib and its McCafe coffee line, helped sales grow all year.

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McDonald's Corp, based in Oak Brook, Illinois, reported that its net income rose 2 percent to $1.24 billion, or $1.16 per share, for the quarter. That's up from $1.22 billion, or $1.11 per share, a year ago.

Revenue climbed 4 percent to $6.21 billion.

The results met the expectations of analysts surveyed by FactSet.

However, the company said it expects food cost will rise 2 to 2.5 percent in the US and 3.5 to 4.5 percent in Europe during the year.

McDonald's has already raised some prices in the United Kingdom to cover higher costs. The company said as prices for beef and other ingredients and other cost pressures in the US become more pronounced throughout the year, it will likely increase prices to offset some, but not all, of its higher costs.

However, McDonald's management said it would raise prices selectively to avoid compromising the popularity it has gained with diners looking for low-priced meals during the down economy.

The company said the commodity cost increases still keep it below its 2009 levels, when it coped with increased prices on a number of ingredients. But it still expects some pressure on profit margins.

In its fourth quarter, sales at US stores open at least 13 months increased 4.4 percent as the company rolled out its Caramel Mocha and customers participated in its perennially popular Monopoly promotion. Worldwide, the figure rose 5 percent on strength in Asia.

The increases were smaller than in the third quarter, when the figure rose 5.3 percent in the US and 6 percent worldwide.

This figure is a key indicator of a restaurant operator's health because it measures results at existing locations instead of newly opened ones.

McDonald's said bad weather in December hurt US sales. It expects global sales at stores open at least 13 months to rise 4 percent to 5 percent in January.

Investors had a mixed take on the quarter with the commodity news as well as strong sales that were hampered in December by the bad economy.

Shares of McDonald's dipped in the morning but rose 12 cents to $75.13 by midday trading. They hit an all-time high of $80.94 in early December.

For the year, McDonald's net income climbed 9 percent to $4.95 billion, or $4.58 per share, from $4.55 billion, or $4.11 per share, in the prior year. Revenue rose to $24.07 billion from $22.74 billion.

McDonald's CEO Jim Skinner said in a statement that in 2011 the company plans to use about half of its $2.5 billion in capital spending to open about 1,100 new restaurants. It will spend the rest improving existing locations.