010346 McDonald's Cuts First-Quarter Earnings Outlook

Chicago - Hamburger giant McDonald's Corp. warned its first-quarter earnings would be hurt by the growing consumer beef scare in Europe, which is reeling from the spread of mad cow disease and, more recently, foot-and-mouth disease.

The world's largest restaurant company, whose warning comes amid dampened outlooks from meat packer IBP Inc., consumer giant Clorox Co., and airline Northwest, said it expects earnings in the period to be 29 to 30 cents a share on a reported basis.

That's below the prior year's 33 cents and the 32-cent Wall Street consensus, as tracked by First Call/Thomson Financial.

For the full year, McDonald's said results could be 2 to 3 cents below current forecasts of $1.60 a share if foreign currency exchange rates remain constant. In 2000, the company earned $1.46 a share.

McDonald's shares were down over 2% to $27.20 in early New York Stock Exchange trading, after a delayed opening at $26.30. The shares, which closed last Tuesday at $27.79, have a 52-week trading range of $26.38 to $39.94.

“Although the company indicates certain steps it will take to improve its outlook, it is likely that the Street's confidence in McDonald's could be at an all-time low,” wrote Salomon Smith Barney restaurant analyst Mark Kalinowski in research published Wednesday.

“The stock may be proverbial “dead money” for a while, as investors may want to see hard evidence of a sustained turnaround before they warm to the shares,” he wrote. “This may not happen until the second half of 2001.”

McDonald's Chief Executive Jack Greenberg said in a prepared statement that “the effect of consumer concerns regarding the European beef supply has persisted longer than we expected, despite the fact that McDonald's overall safety and quality standards lead the industry and provide the benchmark for safe food around the world.”

He also said that difficult sales comparisons worldwide compared to the prior year, which had strong marketing programs, are pressuring results. The company is taking several measures to drive up sales, including hastening the development of more nonbeef menu offerings in Europe.

The company, which reported an unusual profit decline of 7% in its fourth quarter, began seeing its sales drop in Continental Europe, one of its largest markets, late last year. Cases of mad cow disease, a fatal brain-wasting affliction, were discovered in countries such as France and Germany. The less fatal but more contagious foot-and-mouth disease has now spread to Continental Europe from Britain.

On Tuesday, the USDA banned imports of European beef, on concern the disease could spread to the United States.

McDonald's says its hamburgers remain free of contamination and has repeatedly stressed that the muscle meat it uses for the products is not associated with mad cow disease.

In addition to broadening its menu variety, McDonald's said it is strengthening communication with customers, reviewing budgets and reducing capital expenditures in some emerging markets.

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