Fast Food Giants Report Declining Profits As Asians Lose Taste

June 10, 2012Investingby EW News Desk Team


Global fast food giants McDonald’s and Yum! Brands, which runs the KFC and Pizza Hut chains, will introduce more value-priced items on their Asian menus over the coming months, reported Bloomberg on Monday, after latest figures saw a significant drop in its sales taking within the region.

On June 8, McDonald’s reported that its same-store sales had fell by 1.7 percent in Asia Pacific, the Middle East and Africa for May - its biggest decline since 2004 and a stark contrast to the 3.2 percent gain prediction previously compiled by Consensus Metrix.

And while global sales for the company manage to rise by 3.3 percent during the same period, the figure was still short of a previous a 5.2 percent increase estimate.

Profit growth at Yum on the other hand is expected to see a significant dip when its second-quarter results are released on July 13. According to analysts’ estimates compiled by Bloomberg, net income for the company may reach just 4.2 percent, which would be its slowest growth since 2008.

McDonald’s in-coming CEO Don Thompson blamed “slow growth in China” and “challenging economic conditions” throughout the rest of Asia as the reasons behind the global slowdown of the company’s profits.

The company intends to start selling a value-priced dinner in China “in the coming months,” said Thompson, noting that profit margins in Asia had risen by just 16.9 percent for the first quarter of this year – compared to 17.5 percent a year earlier.

McDonald’s is scheduled to report second-quarter earnings on July 23. According to an average of analysts’ estimates compiled by Bloomberg, net income for the company may increase by less than 1 percent, which would be the weakest quarterly earnings growth in three years.

Related: Walt Disney Bans Junk Food Ads On Kids Programmes

Related: Overweight Workers Cost US Companies $113 Billion in Productivity Losses

Related: Denmark Imposes World’s First “Fat Tax”

Related: McDonald’s Take “Pink Slime” Off Their Menus

Nevertheless, Larry Miller, an analyst at RBC Capital Markets in Atlanta, believes that the fast-food chains should continue their expansion within Asia, and most notably China.

“China is slowing to some degree,” but it’s still a profitable market for fast-food chains, said Miller. “I don’t think these guys are making a bad bet.”

blog comments powered by Disqus