Analyst sees McDonald's price increases in 2011

McDonald's Corp will boost prices 2% to 3% in 2011 to offset rising inflation, mostly from higher food costs, RBC Capital Markets analyst Larry Miller said on Tuesday.

McDonald's, which declined to comment saying it is in a quiet period ahead of earnings next week, already has bumped up prices in China to offset a spike in commodity costs there. In October, McDonald's Chief Financial Officer Pete Bensen told analysts prices for beef and other key ingredients were rising, but that McDonald's could easily cope with those increases and push through some menu price increases in 2011. McDonald's has been taking US market share from rivals such as No. 2 hamburger chain Burger King, tempting diners with low-priced food, renovated restaurants and, in some markets, longer operating hours. Still, November global sales at established restaurants were below expectations -- hit by weak demand in the United States and Japan. Raising prices should help the company boost closely watched same-restaurant sales going forward, Miller said. Concerns about slowing US traffic, a value-added tax increase in Britain and other issues recently have weighed on company shares, he said. On the plus side, Miller said easing unemployment rates, a stronger global economy and new products such oatmeal could help boost traffic in 2011. Miller expected McDonald's to have a same-restaurant sales growth rate in the low- to mid-single-digit percentage range in 2011, which would allow McDonald's to "meet or exceed" Wall Street's call for 2011 earnings of USD 5.00 per share.
At the close of trading on Friday, McDonald's shares were down 8.5% from their year-high of USD 80.94 in early December. The stock was up 1.5% at USD 75.15 in midday trading on the New York Stock Exchange.