McDonald’s Corporation (MCD), Yum! Brands, Inc. (YUM): Fast Food, 3 Picks

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Due to significant lower expenses in the US and the Yum! Restaurants International (YRI) division, costs fell 7.5% year-over-year. In the second quarter, total revenue reached $2.9 billion, declining 8% compared to the year-ago quarter. The outbreak of avian flu in China in April affected sales in the division and, hence, the global results. Negative publicity regarding poultry suppliers in the Asian country are impacting on sales. This plays a key role in the earnings per share, which are expected to decline in 2013 despite the solid results coming from the US and YRI.

However, some initiatives can help boost the business next year. One of the main strengths this company is showing is the expansion and focus on the largest emerging markets with a growing middle class, such as India, China and Russia. As for the U.S., Taco Bell and Pizza Hut seem to be regaining momentum.

Yum! Brands, Inc. (NYSE:YUM) has been carrying out a re-franchising program, which reduces risk in its earnings and facilitates ROE expansion and earning-per-share growth. On the downside, credit volatility could interfere with adding new franchisees. The company’s balance sheet over the last few years shows that this strategy improved operating margins. Moreover, Yum! Brands, Inc. (NYSE:YUM) is focusing on its three largest and most popular brands: Taco Bell, Pizza Hut and KFC, while closing down Long John Silver’s and A&W.

My take

Domino’s Pizza has been showing solid figures for the past few quarters thanks to international expansion, menu innovation and marketing activities. The company is increasing its revenue and boosting its shareholders confidence, so I would definitely start a position in Domino’s.

McDonald’s Corporation (NYSE:MCD) is one of the world’s most famous brands but it isn’t in its best days. Growth seems to be slow and fiercer competition might be taking its toll. Emerging markets appear to be a key to expand and Yum! Brands, although experiencing difficulties in China, might be able to gain some market share from the giant McDonald’s.

Despite the fact that these two companies are not showing great figures, I would say Yum! Brands, Inc. (NYSE:YUM) has more potential to expand and grow and McDonald’s might be a safer investment with a lower return.

Louie Grint has no position in any stocks mentioned. The Motley Fool recommends McDonald’s Corporation (NYSE:MCD). The Motley Fool owns shares of McDonald’s. Louie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Fast Food: 3 Picks originally appeared on and is written by Louie Grint.

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