McDonald's Says Sales are Hurting After Chinese Meat Handling Scandal

McDonald's China Scandal
Customers are seen through the windows of a McDonald's store in Tokyo July 31, 2014. Issei Kato/Reuters

(Reuters) - McDonald's Corp's sales in markets, including China and Japan, are experiencing a "significant negative impact" since a food safety scandal in China a fortnight ago forced it to halt the sale of items such as Big Macs and Spicy McWings.

The affected markets account for about 10 percent of its total revenue, the world's largest burger chain said in a regulatory filing on Monday.

"Risks have ticked up in the near-term regarding McDonald's business in China and Japan," Janney Capital Markets analyst Mark Kalinowski wrote in a note.

McDonald's said while the scandal would hurt results in the near term, it could not currently estimate the impact on earnings for the full year.

About 15 percent of McDonald's operating profit comes from the Asia/Pacific, Middle East, and Africa (APMEA) region, which includes China and Japan.

Kalinowski estimated the company's same-store sales in the region would fall 5 percent in the current quarter ending September, while overall profit would take a hit of 3 cents to be $1.55 per share.

Analysts on average are expecting a profit of $1.56 per share for the current quarter, according to Thomson Reuters I/B/E/S.

The company reported a 1.1 percent rise in same-store sales in APMEA in the second quarter ended June.

The scare, triggered by a TV report in July showing improper meat handling by supplier Shanghai Husi Food, has also hit Yum Brands Inc, which owns the KFC and Pizza Hut chains.

The company said last week the scare caused "significant, negative" damage to sales at the chains and would have a material effect on full-year earnings, if sales continued to decline.

McDonald's shares were down 0.7 percent at $93.63 in afternoon trading on the New York Stock Exchange. Up to Friday's close, the stock had fallen nearly 5 percent since reports of the scandal emerged on July 20.

(Reporting by Siddharth Cavale in Bangalore; Editing by Savio D'Souza)

Editor's Pick