McDonald’s took coverage before price run up

by Josh Sosland
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OAK BROOK, ILL. — Even as the company affirmed the negative impact global economic headwinds were having on the company’s financial results, McDonalds Corp. has positioned itself well to weather difficulties emanating from the summer drought, said Peter J. Bensen, executive vice-president and chief financial officer.

Mr. Bensen commented on McDonald’s commodity coverage during a July 23 conference call with investment analysts after issuing quarterly financial results.

“Our supply chain folks, our suppliers, our treasury folks really spent a lot of time earlier this year looking at the markets and did a great job in securing a lot of our grains and other commodities at costs before they ran up related to the recent drought,” Mr. Bensen said. “So that is why we are able to lower our outlook for this year.

“You can imagine, while I won’t get into specific details, we have taken a greater amount of coverage for the next year sitting here at this time than we did have a year ago. So we feel pretty good that the impacts from the drought are going to be minimized on next year’s results as well, to the extent we can see that sitting here today.”

The remarks, made in response to an analyst’s question, contrasted with prepared comments earlier in the call by Donald Thompson, McDonald’s chief executive officer.

“We’re experiencing stronger headwinds on both the top and bottom lines,” Mr. Thompson said. “Some of the headwinds are macroeconomic, such as declining consumer sentiment and higher commodity and labor costs. Other pressures are the result of planned strategic decisions we have made to grow the business.”

Mr. Bensen warned that the positive commodity position alone would not effect a turnaround in McDonald’s profits.

“Margins are still a top-line game,” he said. “They are dramatically impacted by our comp sales; and to the extent the comp sales soften, that is where you see that deleveraging.”

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