Oct 23, 2002 By Dave Carpenter Ap Business Writer 3 min read

CHICAGO (AP) – McDonald’s Corp. reported an 11 percent drop in quarterly earnings Tuesday, its seventh decline in the last eight quarters, and said it will reduce new restaurant openings by nearly half next year as it seeks to end its slump. The fast-food giant, struggling amid the glut of U.S. restaurant competition and perceptions of poor service, among other problems, also said it needs a “significant improvement” in sales if it is to meet its full-year earnings target.

But Wall Street was encouraged by McDonald’s announcement that it was putting slower expansion on its plate. Shares climbed $1.06, or 5.8 percent, to $19.36 in midday trading on the New York Stock Exchange after having sunk to a seven-year low of $15.75 on Oct. 10.

The Oak Brook, Ill.-based company said it now plans to open 600 traditional McDonald’s restaurants worldwide next year, down from 1,050 in 2002, including a significant reduction in the United States.

It also will step up its investment in the other chains it owns and expects to open 150 to 175 of those restaurants in 2003 – most notably a doubling of Chipotle Mexican Grills, which had 212 restaurants as of Sept. 30.

Net earnings for the third quarter were $486.7 million, or 38 cents a share, down from $545.5 million, or 42 cents a share, a year earlier.

The results met analysts’ consensus estimate, compiled by Thomson First Call and lowered last month after McDonald’s warned it wouldn’t meet its quarterly target.

Revenues rose 4 percent to $4.05 billion from $3.88 billion.

Systemwide sales, which include both company-operated and franchised restaurants, rose 3 percent to $10.91 billion from $10.63 billion. But sales at stores open at least a year declined in the United States, Germany, Britain and Japan – all of its five biggest markets with the exception of France.

“This year certainly has proven to be even more challenging than we had anticipated,” said chairman and CEO Jack Greenberg. He said the company, however, has noticed some improvements recently, including a rise in U.S. sales since McDonald’s launched its nationwide dollar menu this month.

By dramatically reducing the pace of new restaurant openings, which peaked at nearly 2,000 in 1996, McDonald’s will slice nearly $500 million off this year’s capital budget and free up cash to beef up its more than 13,300 U.S. restaurants, where sales have been flat.

Greenberg said $300 million of the capital savings will be used to increase reinvestments in existing restaurants and nearly $100 million will go toward new buildings for U.S. franchised restaurants.

Much of the pullback will occur in regions with weak economies. The company said it will significantly reduce its investment in the Asia-Pacific region, the Middle East, Africa and Latin America, and will pare back “somewhat” on openings in Europe.

For the first nine months of 2002, net income was $1.24 billion, or 96 cents a share, compared with $1.36 billion, or $1.04 a share, a year earlier. Revenues were $11.5 billion, up 4 percent from $11.1 billion, and systemwide sales rose to $31 billion from $30.5 billion.

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