McDonald's income increases again

Fast-food giant McDonald’s saw its net income rise by 9% in the third-quarter as it kept defying a tough economy and attracting more customers.

The chain has performed well throughout the recession and its aftermath, but it noted potential challenges like the rising cost of beef and higher labour costs - and warned that could mean prices will have to be increased for the third time this year.

The 9% rise in net income, to $1.51bn (€1.08bn), represents the food giant’s ninth quarter in a row of earnings gains.

Earnings per share of $1.45 beat analysts’ expectations of $1.43.

A 14% increase in revenue, to $7.17bn, also beat the $7.02bn predicted by analysts polled by FactSet.

The success of McDonald’s has hinged on quickly adapting to customers’ changing tastes and reshaping itself as a hip, healthier place to eat.

It has added menu items like smoothies and oatmeal, remodelled restaurants, and converted more locations to 24-hour operations. All those moves, the company says, have brought in more customers.

The company did not give details about possible price increases, though CEO Jim Skinner said keeping prices affordable was “paramount”.

And chief financial officer Peter Bensen said: “We will continue to evaluate additional price increases in light of this inflationary environment, always balancing our goal of driving traffic and market share gains with managing impact of rising costs.”

The company’s US commodity costs spiked 8% this quarter compared to a year ago. That is higher than the 6% in the second quarter and the 1% increase in the first.

The cost of beef, which normally declines at the end of the summer grilling season, stayed high, which McDonald’s had not expected. The US Department of Agriculture now predicts that consumers will end up paying 8-9% more for beef and veal in 2011 compared with 2010.

McDonald’s has already raised prices to offset the higher ingredient costs, increasing menu costs by an average of 1% in March and another 1.4% in May.

Mr Bensen said the company had experienced good “flow through” on the two price increases, meaning they had not driven away customers.