Its problems are temporary so anyone with a long term view can look at its share price and see the opportunity for substantial gains in the years ahead. And while we're waiting for the share price to appreciate over time, there's always the cash dividend to consider. Its current yield is 3.6%, or more than double the yield on a ten year government bond.
And the McDonald's cash dividend will grow and likely double in the next ten years while its stock price should show healthy gains as a result of earnings increases as well. For a long term investor, what's not to like?
McDonald's is Feeling Fried is subtitled 'McDonald's Posts Its First Monthly Sales Drop in Nine Years:'
"Is the golden era over for the Golden Arches?
McDonald's Corp. on Thursday reported the first drop in its monthly same-store sales in nine years. The figures are the latest sign that the company—whose long run of strong performance defied the global downturn—is now struggling to keep growing in the shaky global economy.
The drop in October sales, which followed a decline in third-quarter profits, lands on the plate of the new chief executive, Don Thompson, who moved into the top spot at the company just over four months ago. The numbers could pressure him to take more aggressive action to reenergize the world's largest fast-food chain. Mr. Thompson has made few major changes at the company, vowing when he took over to stay the course with a strategy developed in 2003 that triggered a nearly decade-long surge in McDonald's profits and its stock price.
Several factors are tripping up McDonald's, according to franchise owners, shareholders and analysts.
The soft economy is making it hard for consumers to afford eating out—especially for the younger consumers that tend to favor fast-food, who have been hit hard by high unemployment.
As the most globalized fast-food chain, McDonald's also has been buffeted by economic weakness in Europe, which accounts for 40% of its revenue and operating profit.
McDonald's is facing stronger competition from resurgent rivals that had languished for years. Burger King Worldwide Inc., for example, has been rolling out new sandwiches and promoting discounts, and Wendy's Co., too, has been offering coupons, upgrading restaurants and adding fresh menu items.
"We are concerned," said Dan Popowics, portfolio manager at Fifth Third Asset Management Inc.,
which owns more than 600,000 McDonald's shares. He said Mr. Thompson
has been "boxed in" by the global economic situation and rising
commodity prices that have limited McDonalds' ability to lure customers
with lower prices. "My expectation is we'd start to see some improvement
by the middle of next year."
Scott Rothbort, president of LakeView Asset Management LLC, which counts McDonald's among its biggest holdings, said he doesn't think Mr. Thompson's "job is in danger right now. What will be the deciding factor is how he deals with some of these short-term setbacks."
McDonald's has acknowledged missteps. When it reported a 3.5% decline in third-quarter earnings last month, the company said it had placed too much emphasis on an Extra Value Menu that included items priced higher than a dollar. It said it would refocus its marketing efforts on the Dollar Menu.
For October, McDonald's said "modest" consumer demand and heightened competition offset the benefits from its Dollar Menu advertising, as well as a Monopoly promotion and the recent introduction of cheddar bacon onion premium sandwiches.
An enormous company often has a hard time moving the needle on sales growth, and McDonald's generates global sales of more than $27.4 billion. But sliding back is more of a concern, which is why the October numbers jolted investors.
Global sales at McDonald's restaurants that have been open at least 13 months dropped 1.8% in October, larger than expected, with the U.S. and Europe each down 2.2% and the Asia/Pacific, Middle East and Africa division down 2.4%.
Investors had expected the declines in Europe and Asia, but "the disappointment was on the U.S. side," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC, which owns 360,000 McDonald's shares.
McDonald's shares fell 2% to $85.13 in 4 p.m. trading Thursday on the New York Stock Exchange. Until this year, the shares have risen steadily since 2003, where they started at $16.55; but since their peak of $102.22 in January, they've fallen nearly 17%.
Mr. Thompson, in a statement, said the results reflect "the pervasive challenges of today's global marketplace," and that strategic adjustments the company is making "will build sales momentum and drive sustained, profitable growth."
In an internal memo on Thursday, McDonald's USA Chief Operating Officer Jim Johannesen urged U.S. franchisees and managers to "not let our October performance be a distraction or become a trend."
"Now is the time to be more aggressive" to recapture momentum, said the memo, reviewed by The Wall Street Journal. "Let's not give our competitors a chance to steal away our hard-earned share."
McDonald's also has taken steps to serve more customers faster. It's rolling out a new "dual-point" ordering system that has customers place an order at one area of the counter and pick up their food at another end after seeing their order number displayed on a screen.
Underlining the growing competitive pressure facing McDonald's, Wendy's on Thursday said its same-store sales in North America rose 2.7% at company-owned restaurants and 2.9% at franchised ones in the third quarter, boosted in part by coupons for higher-priced products that attracted higher-income customers.
Wendy's reported a loss of $26.2 million, or seven cents a share, compared with a loss of $3.97 million, or one cent, a year earlier. The loss widened primarily because Wendy's paid off debt and recorded other charges. Revenue rose 4.1% to $636.3 million.
Burger King last month said its same-store sales in the third quarter rose 1.4%."
SUMMING UP
I'm betting on McDonald's. I'm just a curious observer with J.C. Penney, Facebook and others.
McDonald's is solid, has a great track record, its business is easy to understand, it generates lots of cash and what the company does is always on display.
They have a deep bench and are smart and aggressive managers, too.
And they'll beat Burger King and Wendy's every day of the week. At least that's what this customer says.
Thanks. Bob.
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