How to Capitalize
In its report, McDonald’s executives stated that it continues to gain share in the “informal eating out” category. While McDonald’s has long been the leader in this market, Yum! Brands, Inc. (NYSE:YUM) is rapidly gaining in this category in China, where 48% of the company’s business is concentrated. Despite the recent problems Yum! Brands has had in the country, the ongoing expansion in Chinese incomes should fuel growth for this company in the future.
On the American front, The Wendy’s Co (NASDAQ:WEN) has recently been the major winner in the race to gain market share. Rumors are swirling that the Pretzel Bacon Cheeseburger could become a permanent menu item, which could hurt Burger King and McDonald’s. Continued innovation from The Wendy’s Co (NASDAQ:WEN) could spark growth for the company.
Burger King has also recently unveiled a series of limited-time products, which should fuel strong performance when the company reports in August. However, the company will have to continually innovate to sustain its market share, something in the past the company has failed to do.
Burger King will also have to adjust to softening conditions internationally. However, the company has continually displayed the ability to expand, increasing its overall store count by nearly 750 between 2010 and 2012. Sustained growth in its store count could offset poor same-restaurant growth numbers in weak markets.
For McDonald’s, the company’s superior marketing and innovation capabilities should allow the company to maintain its leadership position in the industry. While the European and APMEA segments remain weak, a recovering Europe and strengthening Chinese consumer should make for a stronger 2014.
The Foolish Bottom Line
A challenging rest of 2013 awaits McDonald’s. After the company fell short of numerical expectations, a gloomy forecast followed, sending the stock tumbling.
A primary cause of the weakness included stiff competition from Burger King and The Wendy’s Co (NASDAQ:WEN), both of which launched successful products during the quarter, a feat which McDonald’s failed to accomplish.
Digging deeper into the report and supplementary data reveals a marginally strengthening US market, in addition to weakening European and Asian markets.
Looking forward, investors should track the sustained lag the Avian flu has on Yum! Brands; improvement in economic conditions in Europe; and which companies innovate and are able to launch successful new products in coming quarters.
All in all, while McDonald’s results were disappointing, the pullback may have presented an attractive entry point for long-term investors in search of a stable and solid company.
The article Are the Golden Arches Falling? originally appeared on Fool.com.
Ryan Guenette owns shares of McDonald’s. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and McDonald’s. The Motley Fool owns shares of McDonald’s. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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