By Vivian Chu
NEW YORK (Reuters) - McDonald's Corp. (NYSE:MCD - News) said on Monday it expects second-quarter earnings above Wall Street analysts' average forecast, as favorable foreign-exchange rates offset soft systemwide sales. ADVERTISEMENT
Wall Street traders said the upbeat forecast helped drive gains on the New York Stock Exchange on Monday morning. Shares of McDonald's, a Dow Jones industrial average component, gained 75 cents or 2.6 percent to $29.87, while the Dow rose 1.5 percent.
In an interim update for the quarter, the world's No. 1 restaurant chain said it sees second-quarter earnings of 38 cents to 39 cents a share, up from 34 cents a year earlier.
Wall Street's consensus estimate for the quarter is 37 cents a share, with estimates ranging from 35 cents to 38 cents, according to 17 brokers polled by research firm Thomson First Call.
Analysts attributed the brighter forecast to a weakened U.S. dollar, and they said the company's operations have not fundamentally changed.
"They delivered on the earnings line but seem to have fallen short on the sales line," Lehman Brothers analyst Mitch Speiser said.
"The benefits of foreign exchange seem to have offset sales weakness, particularly in the United States and Asia," Speiser said.
For the year, McDonald's said it expects earnings of $1.36 to $1.41 per share, including first-quarter charges. Excluding those charges, it pegged earnings between $1.47 and $1.52 a share.
The latest guidance for the year is slightly higher than McDonald's earlier target range of $1.47 to $1.50 a share, excluding charges and foreign-currency impact, which it forecast in its last earnings release on April 18.
McDonald's said its earnings expectations reflect a foreign-currency impact of neutral to up 1 percent for the second quarter, and neutral to up 2 cents for the year.
Systemwide sales for the first two months of the quarter rose 1 percent to $6.9 billion over the year-earlier period on a constant-currency basis. In the year to date through May, systemwide sales rose 3 percent to $16.6 billion.
Looking ahead, McDonald's said it expects systemwide sales to increase in the mid-single digits for the year -- lower than the 6 percent to 7 percent it had forecast in its last conference call, Speiser noted.
U.S. sales rose 1 percent in the first two months of the second quarter, and 2 percent in the year through May.
In Europe, constant-currency sales rose 9 percent in the first two months of the quarter, and 10 percent in the year to date.
However, sales in the segment comprising Asia, the Middle East, and Africa sank 7 percent in the first two months of the quarter, and 4 percent in the year to date.
McDonald's attributed the sales shortfall to worries about mad cow disease in Japan, which first broke out last September. A fourth case of mad cow disease was confirmed in May.