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McDonald’s second quarter disappoints

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McDonald’s second quarter disappoints

McDonald’s Corporation (NYSE:MCD) reported its second quarter earnings before the market open on Monday morning. Early in the session shares traded to the downside by 3% as the results failed to meet analyst exceptions. The company reported earnings of $1.38 per share, up 4.5% from $1.32 during the second quarter of last year. Revenue increased slightly to $7.08 billion from $6.92 billion a year ago, however, even with modest growth the results fell short of the consensus estimates of $1.40 EPS on $7.10 billion in revenues.

Healthier menu changes and marketing campaigns helped U.S. sales growth, however, these gains couldn’t make up for weaker than expected performance out of Europe, Asia, the Middle East, and Africa business segments. These regions have been the driver behind the company’s growth in recent years, in addition reasonable justification for the company’s rich 18.1 times earnings multiple. Within Europe, strength out of Russia and the United Kingdom was weighed down by yet another poor result out of Germany and France.

The past 6 months has been rocky to say the least for many consumer discretionary names within China. Slowing wage growth, and health scares have put pressure on the quick serve restaurant industry in particular. The highly publicized tainted chicken concerns may still be affecting sales within the region. In order to combat the scares the company was forced to offer incentives to pull its consumers back to the full menu.

However, in order to diversify its growth, the company has worked to set up a new franchisee agreements within the country of Vietnam. Up until this point Vietnam has remained untouched by the company while competitors such as Burger King (NYSE:BKW) have already started setting up shop. The company plans to be up and an running by 2014, it is unclear today but I find it likely the company will pursue additional expansions in the remainder of the Southeast Asia in the years ahead. The next few days should be interesting for the stock as analysts recalculate their recommendations using the updated guidance and results.

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