The Fall of the Golden Arches?

By Alyce Lomax | More Articles
July 23, 2009 | Comments (6)

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After McDonald's (NYSE: MCD ) lengthy winning streak, today's second-quarter earnings release might make many investors choke on their Big Macs.

Net income fell 8% to $1.09 billion, or $0.98 per share. The quarterly profit took a $0.09-per-share hit from foreign-currency translation, but also included a $0.01-per-share gain, partially thanks to McDonald's sales of its remaining stake in Redbox to Coinstar (Nasdaq: CSTR ) .

Revenue dropped 7%, to $5.65 billion -- without currency effects, it would have risen by 4% -- while same-store sales increased 4.8% globally. Europe posted the most robust results, with a 6.9% increase in comps, while the Asia/Pacific, Middle East, and African segment expanded 4.4%. The U.S. market lagged them both with a mere 3.5% gain. The strong comps are positive news, even though they didn't translate into solid dollar-denominated results. Similar negative currency effects have plagued global players such as Philip Morris International (NYSE: PM ) and Coca-Cola (NYSE: KO ) .

Obviously, this wasn't a very exciting quarter for McDonald's. Then again, the latest quarterly results from Starbucks (Nasdaq: SBUX ) and Yum! Brands (NYSE: YUM ) haven't been a thrill a minute, either. It's tough out there, even if companies have been able to meet or beat analysts' (reduced) expectations.

We may have been spoiled by last quarter's results, in which McDonald's seemed to simply and utterly defy the recession. Despite these relatively ho-hum earnings, don't forget that the Golden Arches' most recent same-store sales still far outshone those delivered by either Yum! Brands or Starbucks.

I'm still thumbs-up on McDonald's, even if today's tidings seem to be giving many fair-weather investors a case of indigestion. Mickey D's has been doing very well in the tough economy, and it has proven it can excel in good times as well. Even though its price-to-earnings ratio of 16.8 is only slightly more than that of Yum! Brands, and much higher than Burger King's (NYSE: BKC ) ratio of 12, I'd still say McDonald's drop in price today probably represents a tasty opportunity for long-term investors hungry for a venerated low-price leader in the consumer landscape.

Drive thru some related Foolishness:

Is there grounds for exuberance at Starbucks?
Maybe investors should spit out Yum! Brands.
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Coca-Cola and Starbucks are Motley Fool Inside Value recommendations. Starbucks is also a Stock Advisor pick, and Coca-Cola is also an Income Investor selection. Philip Morris International is a Global Gains recommendation. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services, free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool's disclosure policy is gravely concerned about recidivism among Hamburglars.

Read/Post Comments (6) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On July 23, 2009, at 3:18 PM, swlaaggie wrote:

Agree strongly. Walking the talk as well by buying. I'm not sure where one could go wrong buying a best in breed company and get paid rather handsomely to wait for next quarters results.
Additionally, I just can't let go of the feeling that this economy will provide justification for the consumer to bypass a MCD in favor of a "step up" dining experience company.
Report this Comment On July 23, 2009, at 3:20 PM, swlaaggie wrote:

Edit comment: In other words, I'm not sure the consumer now has a bunch of disposable income that will allow him/her to bypass a MCD in favor of the next step up in casual dining.
Sorry for the edit.
Report this Comment On July 23, 2009, at 3:25 PM, rd80 wrote:

Someday, probably sooner rather than later, the dollar is going to weaken and all those overseas sales are going to look really good.
In the meantime, I'm just adding shares when they go on sale like they did today.
Report this Comment On July 23, 2009, at 7:50 PM, mberan wrote:

If you're bullish on the stock, why the headline of doom?? Just say it's a buying opportunity!
Report this Comment On July 25, 2009, at 11:15 PM, TimothyVR wrote:

Good article.
But I agree with mberan: a foolish (not in a good way) and misleading headline.
Those pseudo-tabloid headlines are everywhere here? Why? This is an excellent site. I would read the article anyway if it had a sensible headline.
Report this Comment On July 27, 2009, at 10:57 AM, TMFLomax wrote:

Thanks guys - and your points are well taken regarding the headline.
Best, Alyce

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