McDonald’s Q1 profit up by 11% driven by coffee sales

MCDONALD’S has said first-quarter profit rose 11%, fuelled by US demand for coffee and burgers, and has predicted further increases in food costs this year.

Net income advanced to $1.21 billion (€845m), or $1.15 a share, the world’s biggest restaurant chain said.

Items such as beverages and the Chipotle BBQ Bacon Angus burger helped lure people in the US, the Illinois-based company said.

McDonald’s and other restaurant chains are weighing price increases as surging expenses for commodities such as beef, pork and eggs cut into profitability.

Chief financial officer Peter Bensen said earlier this year that the company will probably raise prices to counter the surge in ingredient costs.

“Food costs pressures are out there,” said Jack Russo, an analyst at Edward Jones & Co in St Louis who recommends holding the shares.

“They may run into a few challenges this year, it will be interesting to hear them talk about raising prices because we know that McDonald’s is seen as a value brand,” he added.

McDonald’s expects food expenses to rise as much as 4.5% in the US and Europe. In February, the company forecast an increase of as much as 2.5% in the US.

Chipotle Mexican Grill, the burrito chain spun off from McDonald’s in 2006, reported that restaurant operating profit margin shrank 0.9% to 25.2% in the first quarter on higher ingredient costs.

The chain has raised menu prices in certain regions of the US to help counter food inflation.

McDonald’s sales at stores open at least 13 months climbed 4.2% globally last quarter. They rose 2.9% in the US, 5.7% in Europe, and advanced 3.2% in Asia, the Middle East and Africa. Comparable-store sales are an indicator of growth because they exclude the impact of store openings and closings.

McDonald’s Holding Co Japan said that March comparable sales fell 7.3% because of restaurant closures following the March 11 earthquake.

Of the 3,300 stores in Japan, more than 50 remain closed as of April 14, according to a company spokeswoman.

McDonald’s has also increased its exports of produce, sauces and oil to Japan to keep restaurants there stocked.

In the first-quarter, McDonald’s sales increased 8.9% to $6.11bn, compared with the average analyst estimate of $6.01bn. In the year-earlier period, profit was $1.09bn, or $1 a share.