McDonald's raises costs and stocks go down

McDonald’s, at about nineteen percent of the industry, is the world’s fast food top dog. However, faced with the rising costs of food and paper, the company has announced that it plans to apply small price increases throughout the year in order to offset some, but not all, of this trend.

Guesses wrong

McDonald’s guesses that food costs will rise between 4 percent and 4.5 percent in the U.S. and Europe this year. In the U.S., McDonald’s initially predicted a 2 to 2.5 percent increase. It was expected to only go up 3.5 to 4.5 percent in Europe. The hikes included paper costs. They were expected to go up. According to McDonald’s, commodities needed costs took up 33.6 percent in the first quarter of 2011 of the company’s sales. From the same quarter a year ago, costs increased a lot. Those costs went up 32.9 percent.

Raising costs at a bad time

Fewer individuals will go out to eat if the costs go up too much. Individuals are already dealing with increases in prices for housing, fuel and food. Steve West, an analyst for securities-related financial services business Stifel Nicolaus, said, “It’s very hard to pass through price increase(s) right now.”

Concern flusters investors

Stock shares went down 1.5 percent on the New York Stock Exchange midday after the announcement was made.

The company’s CFO Pete Bensen states the company intends to sacrifice some short term profits in favor of long term growth.

Costs go up 1 percent total

A menu price increase occurred at McDonald’s restaurants in Europe and the United States in March. Other increases are prepared throughout the year. Increases are also anticipated in China. Everybody should be on the lookout.

Still seeing McDonald’s at the top

McDonald’s continues to outperform its competition. Peter Jankovskis said, “The bottom line is they’re still doing a great job of growing revenue.” Jankovskis is an Oakbrook Investments officer. In the first quarter, the corporation made $6.1 billion in revenue. That is a 9 percent increase. There a huge difference shown in the European stores especially.

Citations

Reuters

reuters.com/article/2011/04/21/us-mcdonalds-idUSTRE73K0U820110421

MSNBC

msnbc.msn.com/id/42695011/ns/business/t/mcdonalds-warns-higher-food-inflation/

Daily Finance

dailyfinance.com/2011/05/25/higher-food-costs-will-eat-into-mcdonalds-profit-margins/