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Profit at McDonald's Rises 53%

The company gets a fourth-quarter lift from higher revenue at U.S. and European stores.

January 25, 2006|From Associated Press

CHICAGO — Strong momentum at its U.S. restaurants and improved sales in Europe helped McDonald's Corp.'s fourth-quarter income rise 53%, sending the fast-food chain's stock to a 5 1/2 -year high Tuesday.

Up next for U.S. customers: three new products that McDonald's hopes will keep sales from slowing. Its spicy chicken sandwich, premium roast coffee and Asian salad are due out by spring.

Wall Street continued to endorse McDonald's performance. Shares rose 14 cents to close at $35.85 after climbing to $36.31, their highest since June 2, 2000, and have nearly tripled in value since pulling out of a nose dive in early 2003.

Net income for the last three months of 2005 was $608.5 million, or 48 cents a share, up from $397.9 million, or 31 cents, a year earlier. Revenue rose 4% to $5.23 billion.

The Oak Brook, Ill.-based company continues to derive much of its momentum from its home market, where extended operating hours, cashless payments and new menu items have boosted sales at the nearly 14,000 U.S. restaurants.

In Europe, where sales have lagged, strong results in France and Russia and improvement in Germany led to a modest 2.6% overall increase in same-store sales for the year.

Chief Executive Jim Skinner said the company planned to repurchase about $1 billion of its stock in the first quarter and would open 800 new restaurants this year as part of a $1.8-billion capital spending plan.

The increased stock and sales have lent credibility to the company's insistence that it doesn't need to spin off or sell company-owned restaurants to maximize its share price, as activist shareholder William Ackman of Pershing Square Capital Management has publicly urged.

"We believe it is critical to own and operate a certain number of restaurants," Skinner said. "We firmly believe that owning restaurants is paramount to being a credible franchiser."

Acknowledging, however, that franchised restaurants perform slightly better than its 8,100 company-owned restaurants, executives said they intended to turn over more than 100 company-owned McDonald's in Britain to franchisees starting this year. No U.S. company-owned restaurants will be affected.

Chief Financial Officer Matthew Paull said the company also would convert 1,500 restaurants in 15 to 20 other countries over the next three years to development licenses, in effect handing ownership to local entrepreneurs who provide the capital and the land.

For the full year, the company had net income of $2.6 billion, or $2.04 a share, up 14% from $2.3 billion, or $1.79, in 2004. Revenue increased 7% to $20.5 billion.

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