McDonald’s Corporation (NYSE: MCD) posted strong results alongside Wal-Mart Stores
(NYSE: WMT) as a growing number of consumers seek out value in today’s
weak economy. The world’s most popular fast food chain saw a 12 percent
rise in same-store sales, driven in the U.S. by strong performance from
its breakfast, premium coffees and “everyday value” offerings.
Meanwhile, overseas growth was driven by a weaker U.S. dollar that kept
prices cheap. So, is MCD a buy?
Chief Executive Officer Jim Skinner commented, “McDonald’s
consolidated performance continues to reflect our enduring profitable
growth with comparable sales up 6.8% for the year – one of our
strongest increases since the initiation of our Plan to Win. We
continue to drive our business by linking consumer insights to our
strategies of convenience, branded affordability and innovative menu
offerings.”
Many investors were worried about McDonald’s after weak consumer
spending and higher food costs hit its sales in the fourth quarter. You
see, fast food chains are not able to pass on high food costs to
consumers without losing sales in today’s weak consumer spending
environment. However, McDonald’s was able to keep prices low with its
efficient food distribution system while a weak dollar helped spur
sales outside of the United States.
It is also important to realize that these numbers aren’t all they
seem. McDonald’s earnings did receive a 6.7 percent boost from the
decline in the U.S. dollar while 4 percent of its same-store sales
increase can be attributed to the extra day from the leap year.
However, the results are definitely an improvement from its fourth
quarter numbers and should help restore investor confidence in the
company.
McDonald’s also reaffirmed its commitment to maximizing shareholder
value. It seems that the fast food chain has learned its lesson after
its encounter with activist Bill Ackman and vowed to continue its
target $15 billion to $17 billion cash return to shareholders between
2007 and 2009. McDonald’s also announced that it would begin a
quarterly dividend beginning in 2008 starting at $0.375 per share. This
is great news for shareholders as a combination of buybacks and
dividends should help keep the company’s multiple near or above that of
its peers.
In the end, McDonald’s has proven itself to be a strong company in a
weak economy thanks to its value pricing and international exposure.
Investors looking for a familiar name but international exposure may
want to think about adding MCD to their portfolio. Combined, these
factors make MCD a stock that is definitely worth watching over the
next year!
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