McDonald's Slides on Margin Squeeze

OAK BROOK, Ill. (TheStreet) -- McDonald's(MCD) beat quarterly expectations but its shares took a hit Thursday morning after the burger chain said higher food costs squeezed its profit margin.

McDonald's said its first quarter profit jumped 10.9% to $1.21 billion, or $1.15 per share, compared with year-earlier earnings of $1.09 billion, or $1 per share. Sales grew by 8.9% to $6.11 billion, led by strength in Europe, and by strong U.S. demand for beverages and the Chipotle BBQ Bacon Angus burger.

Results topped expectations for a profit of $1.20 billion, or $1.14 per share, on revenue of $6 billion.

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Like McDonald's, fast-food chain Yum! Brands(YUM), which operates Taco Bell, KFC and Pizza Hut chains, also saw its quarterly results boosted by strength overseas. For Yum!, profits and sales grew thanks to strength in China .

Despite McDonald's earnings beat, investors bid the stock lower by 1.4% to $7.30 Thursday morning, disappointed by a narrowed profit margin.

McDonald's said rising food and paper costs pushed its profit margin to 17.7%, from 18.2%, and the company increased its inflation forecasts.

McDonald's now expects food costs to rise between 4% and 5% this year, both in the U.S. and in Europe. Earlier this year McDonald's had forecast food costs to rise between 2% and 2.5% in the U.S., and between 3.5% and 4.5% in Europe.

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