McDonald's Corp. on Thursday reported a 6 percent drop in third-quarter earnings, in line with a better-than-expected outlook it gave last week, but the company's shares fell 2 percent as higher labor and beef costs pressured profit margins.
Improvement in major European markets like Germany and France helped boost sales at the world's largest restaurant company, but investors were disappointed by margins at company-owned restaurants. The company operates more than 30,000 restaurants worldwide; about 18,000 are franchised.
"Quality was not as high as we would have hoped," Prudential analyst Larry Miller said in a note to clients. "Company operated margins were lower than we were expecting."
McDonald's chief financial officer responded to the margin concerns on a conference call with analysts.
"There are several areas of the world where margins and returns are well below historical highs and below our targets," the CFO, Matt Paull, said. "Our entire management team is focused on improving these results."
Last week, McDonald's said sales of its new Premium Chicken sandwiches, a strong breakfast business and later hours had helped to drive sales in the United States, its flagship market, during the quarter.
In Europe, McDonald's No. 2 market, progress has been slow, in part due to economic weakness in Germany. However, in recent months demand for products like the premium Big Tasty hamburger in Germany and the lower-priced Les Petit Plaisir chicken sandwich in France have boosted sales in those countries.
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