McDonald’s posts strong quarter

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Updated: February 26, 2012 8:11AM

NEW YORK — Budget-conscious diners continue to flock to McDonald’s, but investors are beginning to worry about the fast food giant’s higher prices and upcoming expenses.

After the company reported Tuesday that net income jumped 11 percent in the fourth quarter on Tuesday, CEO Jim Skinner said his company can perform well in any economy.

But Skinner also noted that the struggling global economy, volatile costs for ingredients and low consumer confidence present a challenge for the world’s biggest burger chain.

McDonald’s, which serves as a bellwether for the fast-food industry, has done well throughout the recession and its aftermath with a two-pronged strategy. It’s continued to attract a base of cash-strapped customers by keeping prices low, while also luring in new customers with offerings such as smoothies, lattes and remodeled restaurants.

In the fourth quarter, McDonald’s net income of $1.38 billion translated to $1.33 per share, while revenue jumped 10 percent to $6.82 billion.

Higher costs for ingredients continue to be an issue, even though costs for some ingredients, like wheat and corn, have leveled off. McDonald’s said it expects costs for most of its commodities in the U.S. to increase 4.5 to 5.5 percent in 2012, in line with 2011’s 4.9 percent increase. Last year, McDonald’s raised menu prices three times, for a total price increase of about 3 percent, in March, May and November.

Chief financial officer Pete Bensen said the company would continue to “strategically take increases to offset some but not all of our higher costs.”

Bensen added that McDonald’s would take “a balanced approach to growing traffic and average check” as it mulled further price increases. The company doesn’t want to raise prices too much and risk driving away customers or causing them to trade down to cheaper items.

Like many companies, McDonald’s is looking for revenue growth in emerging markets such as China and Africa, where fast-growing populations present both high risk and high potential rates of return. About 22 percent of McDonald’s revenue comes from Asia Pacific, Africa and the Middle East, up from 14 percent five years ago. That region grew revenue 13 percent over the year, faster than any other.

In the U.S., McDonald’s will focus on getting more customers into the existing 14,000-plus locations.

“A lot of it is simple things like proper scheduling, positioning and then planning for your shift, planning for that time period from 11 (a.m.) to 1 (p.m.) for example to be able to facilitate faster service, and fast service begets more customers,” Skinner said.

The company said it continues to set aside money for renovating restaurants, which it sees as key to attracting new customers. Globally, McDonald’s has renovated about 45 percent of its restaurants’ interiors and 25 percent of the exteriors. But the remodeling has needled some franchisees who have to share in the costs.