March 29, 2005
McD's downgraded amid cost concerns
(AP) — McDonald's Corp. shares fell Tuesday after the fast-food powerhouse was downgraded on concerns over escalating food and labor costs, as well as the early adoption of stock-based compensation accounting.
The Oak Brook-based company is also facing pressure from service initiatives and discounts offered to clients in Europe, according to a report from Canadian-based research firm CIBC World Markets. The firm reduced its first-quarter profit outlook to 41 cents per share from 45 cents and its full-year earnings guidance to $1.97 per share from $2.08.
``We're lowering our 2005 and first-quarter estimates to reflect the company's early adoption of stock option expensing beginning the first quarter and cost pressures from food costs, discounting and promotions in Europe and U.S., and increased labor costs associated with service initiatives,'' said CIBC analyst John S. Glass in a note to clients issued late Monday.
McDonald's said in its 2004 annual report that it will usher through the early adoption of rules that require companies to expense stock-based compensation. The full-year adoption of the accounting rule is expected to reduce McDonald's 2005 earnings by $188 million, or 10 cents per share.
Analysts surveyed by Thomson First Call expect McDonald's to report quarterly earnings of 45 cents per share and 2005 profit of $2.05 per share.
Shares of the company fell 40 cents to $31.13 in afternoon trading on the New York Stock Exchange.