McDonald's Delivers as Promised

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As usual, McDonald's (NYSE: MCD) earnings report is a bit anticlimactic, since the company always reports sales the week before. This time around, McDonald's increased its guidance at the same time.

Surprise, surprise -- McDonald's hit its raised target, growing its third-quarter net income 27% to $1.07 billion, or $0.89 per share. (Earnings for continuing operations were $0.83 per share.) Sales increased 7% to $5.90 billion, although that increase included benefits from currency translation. Operating income increased 18% to $1.52 billion.

There's an interesting tidbit in the exhibits of the company's SEC Form 8-K regarding its recent sale of Boston Market. McDonald's got $250 million for the restaurant chain, although it only recorded a gain of $68.6 million after taxes. Good riddance, too -- Boston Market represented a loss of $8.5 million for the first nine months of 2007, versus a loss of $2.6 million last year. McDonald's bought Boston Market for $174 million seven years ago, but given its lack of profitability, I won't be shedding any tears for its departure.

It's not easy to argue that McDonald's looks as cheap as a $1 burger, but its many strengths make it considerably more attractive than rivals like Wendy's (NYSE: WEN), Burger King (NYSE: BKC), and Yum Brands (NYSE: YUM). Not to knock any of them too much (other than maybe Wendy's, which has really been bland lately), but McDonald's extremely successful turnaround has arguably made it leader in inexpensive fast food. Mickey D's has done a great job of persuading patrons to come back for more -- and more, and more... 

Meanwhile, even as McDonald's consistently exceeds expectations through its strategic Plan to Win, it's also paying out rich dividends and buying back shares. From 2007 through 2009, the company plans to return $15 billion to $17 billion in cash to shareholders.

Although rising costs may be an issue here in the U.S., I'm not losing faith in this stock right now. (I nominated it as Best Blue Chip for 2007 this time last year, and it seems to be living up to that optimism so far.) McDonald's delivered what it promised with its quarter. It has a thirst for continued power, and I wouldn't underestimate it now, given its strong business momentum lately.

Here's more news from McDonaldland:

• McDonald's had a hot August.