MCDONALD'S WARNS OF ANOTHER QUARTERLY DECLINE

Costs Continue to Rise as Sales Remain Down

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CHICAGO (AdAge.com) -- McDonald's Corp. warned it would face its first quarterly loss in history as well as its eighth quarterly earnings decline in the fourth quarter.

"This has been a difficult year, and our financial performance has been below expectations," Matthew Paull, executive vice president and chief financial officer, said in a statement.

Costs expected to rise
Despite layoffs and cost-cutting moves

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announced in November, McDonald's expects its selling, general and administrative costs to rise 12% over the prior same quarter on higher advertising and technology spending. During that period, the company has pumped tens of millions of dollars into a new Dollar Menu that escalated the discounting wars among the burger barons.

Factoring in those overruns and restructuring costs, the company will take roughly $435 million, or 5 to 6 cents per share, in pretax charges for the quarter.

As frantic moves to revive sales have fallen short, the fast-food giant on Dec. 5 said Chairman-CEO Jack Greenberg would retire at the end of the month to make way for Jim Cantalupo, former vice chairman and president.

New initiatives expected
Mr. Cantalupo is expected to announce in January his first corporate moves to "sharpen [McDonald's] focus and improve results," which several insiders say could happen as early as the end of this week. Those changes could also add to the fourth-quarter charges, the company said.

Observers are split on whether Mr. Cantalupo should tweak or dump the costly Made For You kitchens installed in the U.S. under Mr. Greenberg that were also blamed for slower-than-ever service.

Sales down
Same-store sales for McDonald's fell 1.6% for the two months ended Nov. 30 and 2% for the cumulative 11-month period. The 1.3% sales loss in the U.S. during October and November as the company launched its Dollar Menu was the most narrow of the company's four declining regions. Latin America showed a gain of 10.9% and was flat for the 11-month period.

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