McDonald's Profits Fall on Slowing Global Economy and Rising Competition

US fast food retail chain McDonald's has posted less than expected profits in the third quarter amid a gloomy global economy and rising competition.

The company's net income dropped 3 percent year on year in the quarter to $1.45bn (£911m), or $1.43 per share while revenues eased to $7.1bn.

"When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today," McDonald's chief executive Don Thompson said.

"It is clear, however, that this operating environment is the new norm."

Increasing commodity prices and competition from brands such as Yum have affected McDonald's profits. Yum Brands had recently posted better results on the back of better performance in China.

McDonald's other major competitors, Wendy's and Burger King are reported to have done up their product range, aiming to improve their sales. The strengthening dollar is also considered to have affected McDonald's profits worldwide.

The company noted that the lagging European economy and the subsequent austerity measures in the region have affected its sales there. Its operations in China have also been hit by the slowdown in the world's second largest economy.

But analysts are more concerned about the company's weak performance in the quarter, since it had done better at the peak time of economic downturn.

"Global sales were lower than in any quarter even during the peak of the financial crisis at a time when macro indicators like consumer confidence were much worse," Michael Kelter, a Goldman Sachs analyst told the Financial Times.

"Why is McDonald's not weathering the macro turbulence as well as before?"

However, Thompson said that the company is confident of its long term prospects, even though the pressure on sales may continue, adding that he remained "confident in the underlying strength of our business model".

McDonald's shares dropped 4.5 per cent to $88.72 following the report.