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(snip)"With earnings season roaring on, McDonald’s posted an earnings beat that disappointed investors as rising input prices, due to commodity price inflation, put pressure on margins and sent the stock lower.

The Golden Arches, the largest fast-food restaurant chain in the world, posted net income of $1.21 billion, up 10.9% from the first quarter of 2010. In a per share basis, the company earned $1.15, a penny above consensus estimate.

Mickey D’s showed strong sales across the board, with revenue up 9% to $6.1 billion. Comparable-store sales, defined as those open at least 13 months or more, were up 4.2% globally. Strength came from McDonald’s biggest market, Europe, where sales were up 5.7%. U.S. sales gained 2.9% and Asia/Pacific/Middle East/Africa sales gained 3.2%. Recently the company that created Ronald McDonald and the Hamburglar announced plans to hire 50,000 employees in its U.S. stores. (Read Sights Set On China, McDonald’s Grows).

With inflation on everyone’s radar, it comes as no surprise that McDonald’s will feel the pinch. Operating margin fell to 17.7% at the Golden Arches, as input costs began to put serious pressure on profits. While McDonald’s doesn’t give an official inflation outlook, its SEC filing reveals that “With about 75% of McDonald’s grocery bill comprised of 10 different commodities, a basket of goods approach is the most comprehensive way to look at the Company’s commodity costs. For the full year 2011, the total basket of goods cost is expected to increase 4-4.5% in the U.S. and Europe.” (Read Why World Food Prices Will Keep Climbing).

Inflation, margins, and international exposure seem to be the keys to the restaurant business this earnings season. On Wednesday, Yum Brands and Chipotle posted earnings and faced opposing realities. Yum Brands rallied on increased demand from China, where its KFC stores are immensely popular. Chipotle, on the other hand, has almost all its stores in the U.S. and didn’t manage to convince investors that pressure on its margins was a transitory phenomenon. Yum’s stock soared through Thursday while Chipotle tanked. (Read Opposite Realities As Yum Rallies And Chipotle Tanks On Earnings).

McDonald’s wasn’t doing too well either. By 11:06 AM in New York, investors showed their concern over the inflation outlook, sending the stock down 2% or $1.55 to $76.85 for the Dow component."(snip)


(snip)"NEW YORK (TheStreet) -- Southwest Airlines(LUV_) saw its first-quarter profit drop 55% to $5 million as climbing fuel costs increased operating expenses.

For the quarter ended March 31, the airline company reported earnings of $5 million, down from earnings of $11 million in the same period a year ago. Earnings per share came in flat at 1 cent.

"While escalating jet fuel prices and inclement weather challenged our first quarter profitability, our people prevailed," said Chairman, President and CEO Gary Kelly in the earnings press report. "Record monthly load factors, combined with solid passenger revenue yields, resulted in a 17.8% year-over-year increase in passenger revenues."(snip)


The arguable common point here is that, despite the fact that sales ... and sales revenue dollars ... have increased, net company profit margins thus stock prices are down. The 'culprit' here is of course the rising costs of necessary 'inputs' ... which in the case of these two examples are food and energy.

Since public companies are at the 'mercy' of bankers and stockholders, there is absolutely no question that McDonalds, Southwest Airlines, and a host of other US companies will have no choice but to start passing on ( additional ) price increases to their customers in order to restore acceptable profit margins. For months now, US consumers have been more or less 'insulated' from rising commodity and wholesale prices because corporations didn't dare raise prices at the retail level for fear of losing market share to competitors. However, it is now a certainty that ALL competitors will collectively begin to float ( additional ) retail price increases because current profit margins given current 'input' cost increases simply aren't tenable in the long term. And of course these retail price increases are coming on the heels of 'commodity' price increases that have already been passed on to consumers at grocery stores, gas pumps, and utility bills !!!