The euro just can't catch a break.
It has been losing value for months, as investors channel their concerns about the European debt crisis to the region's currency. On Monday, it hit a two-year low in morning trading. And now, McDonald's is blaming it for a lackluster second quarter.
The world's largest burger chain reported lower profit and flat revenue on Monday. The results disappointed investors, who sent the stock down nearly 3 percent in the early afternoon.
But McDonald's was quick to point out that results would have been much better without the impact of foreign-exchange rates.
Here's what they mean: At a company like McDonald's, which is based in the U.S. but does much of its business internationally, a stronger dollar can crimp profit and revenue. That's because when the dollar is strong, money made overseas translates to fewer dollars back at U.S. headquarters.
Over the past quarter, the dollar has gained ground significantly against the euro, as one European country after another teeters into or near recession. The euro on Monday morning fell as low as $1.2066, its lowest point since June 2010. At the start of April, the beginning of the second quarter, it was around $1.33.
McDonald's is heavily dependent on Europe, doing about 40 percent of its business there.
To make the point about the effect of the weaker euro, McDonald's detailed what results would have been without the currency fluctuations. Per-share earnings, which were down 2 percent, would have been up 3 percent. Total net income, which fell 4 percent, would have been up 1 percent. Revenue, which was flat, would have been up 5 percent.
But exchange rates can also work in a company's favor. When the dollar is weaker, money made overseas translates to more dollars back in the U.S., and McDonald's has certainly benefited from that effect in other quarters.
Yum Brands, the owner of Taco Bell, KFC and Pizza Hut, also noted the negative impact of currency translations when it reported second-quarter results last week. For example, international sales grew 4 percent — but they would have grown 7 percent without the foreign-exchange translations.
But in China, a key growth area for Yum, the company benefited. The dollar fell against the Chinese renminbi over the quarter, boosting results there. China sales grew 31 percent. Without foreign exchange, they would have been lower, 27 percent.
Shares of Yum fell $1.26, or 1.9 percent, in Monday afternoon trading.
Burger King is expected to report results in August, and it could face similar challenges. About 40 percent of its restaurants are outside the U.S. and Canada. Burger King's stock fell 23 cents to $15.65.
Wendy's, which reports Aug. 9, is unlikely to be affected. Only about 5 percent of its restaurants are outside North America. However, the economic concerns that McDonald's cited aren't good news for any restaurant chain. Wendy's shares fell 11 cents, or 2.4 percent, to $4.51.
