McDonald’s Corporation (MCD) Churns Higher on Improved Margins Abroad

Page 1 of 2

McDonald’s Corporation (NYSE:MCD , the world’s largest fast food chain, recently reported its results for the fourth quarter, beating analysts’ estimates. Profit rose very slightly from $1.38 billion in 2011 to $1.4 billion in 2012. Quarterly earnings per share rose to $1.38 as net margins improved slightly on increased non-U.S. margins. However, sales in the Japanese and European markets were soft, as would be expected with both areas in recession. Global comparable sales were essentially flat at +0.1%, which is statistical noise.

McDonald's (MCD)The total revenue for the organization rose from $6.82 billion to $6.95 billion, up 2% over the same period last year, versus analysts’ estimate of $6.89 billion. The sales at McDonald’s company-operated stores increased by 2% to $4.66 billion, while franchise restaurant sales increased by 3% to reach $2.29 billion.

Comps in the United States for the quarter rose by just 0.3% due to competition and economic pressures while operating income was flat overall, not a source of margin increase.  It was in Europe and APMEA (Asia-Pacific, Middle East, Africa) where margins improved, though comps were off.  Income in the European market went up by 5%, with a major contribution coming from the UK and Russia though sales fell by 0.6%. APMEA comps declined by 1.7%, but operating income remained fairly flat, a net increase in margins.

So, in essence, outside of the U.S. McDonald’s still retains some pricing leverage for even foreign currency translation was a negative driver on EPS by $0.01. Excluding the foreign currency losses, EPS actually increased by 5% from last year.

Although McDonald’s managed to eke out some gains, this was a weak report and management concurred, presenting a cautious outlook for 2013.  According to the company’s CEO Donald Thompson, the economy is extremely volatile, consumer sentiment is not encouraging – the big drop in the Consumer Reports Index points to that – and its rivals are ramping up the competition; thus spending and growth of the restaurant industry is likely to continue with the same trends in the coming year. Sales for January are expected to fall compared to the same period last year versus a 6.7% increase last January.

McDonald’s faces tough competition from Burger King Worldwide Inc (NYSE:BKW) and Yum! Brands, Inc. (NYSE:YUM)’s Taco Bell over new food items and the dollar menu. Burger King has introduced molten fudge bites, sundaes, improved versions of its Italian chicken sandwich and cheesy tots.  Similarly Taco Bell’s value items for $0.99 are being heavily advertised, continuing to focus on the magic price point even as portion size and food quality decline. This is something McDonald’s has in mind, and it is planning on introducing stronger menu items this year. It has started off by testing chicken wings for its outlets in Chicago. Also, McDonald’s is planning to introduce Fish McBites for its customers in the US, along with beef sandwiches, chicken entrees and breakfast menu items in an attempt to boost sales in its second biggest market.

McDonalds Yum Brands Burger King
Market Cap $95.3 Bln $29.02 Bln $6.24 Bln
Stock 6M 5.91% -3.23% 16.17%
P/E 17.67 18.94 0.73
EPS 5.36 3.4 24.46
Yield 3.30% 2.10% 0.90%
Beta 0.31 0.68 N/A
ROE 38.66% 73.68% 7.20%

In the last six months, the much smaller Burger King has outperformed its bigger rivals and the SPDR S&P 500 ETF, which is up by 8.22% in the corresponding period. McDonalds and Yum Brands have a dominant presence all around the world.  Both are increasingly focusing on the emerging markets, particularly China, for their future growth.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!