McDonald’s Corporation (
), a leading fast food centre, recently reported dismal second quarter 2009 profit. Net Profit declined 8.1% year over year to $1,093.7 million, despite increase in traffic counts and rise in operating income. The foreign currency fluctuation adversely impacted the top and bottom lines.
On a reported basis, EPS declined 5.8% to $0.98 from $1.04 reported in the prior year quarter. The strong U.S. dollar continues to moderate results, trimming reported earnings by $0.09 per share. Management hinted that currency fluctuations might lower its full-year earnings by $0.21. In constant currencies, EPS increased 3%.
McDonald’s reported EPS of $0.97, excluding $0.01 per share gain related to the sale of Redbox Automated Retail and license deal in Indonesia, up 3.2% from $0.94 reported in the prior year quarter excluding $0.10 per share gain on the sale of the company’s minority interest in Pret A Manger. Excluding foreign currency translation and gains, EPS increased 12.8% to $1.06.
Revenue for the reported quarter declined 7% to $5,647.2 million; but increased 4% in constant currencies. Revenue from company-operated restaurants declined 10.4%, whereas revenue from franchise-operated restaurants increased marginally by 1%. Total operating income ascended 1.7% to $1,681.5 million; but jumped 11% in constant currencies.
Despite a sinking global economy, McDonald’s continues to grow same-store sales while maintaining healthy margins by expanding market share. Global same-store sales rose 4.8% with the U.S. sales up 3.5%, Europe up 6.9% and Asia/Pacific, Middle East and Africa up 4.4%. Moreover, in the current economic environment when GDP is falling and unemployment is on the rise, McDonald’s was able to boost its domestic share with its value for menu products like the Big Mac (beverage) and McCafe premium coffee line-up. In the past few years, the coffee business has increased to 5% of total sales from 2%.
McDonald’s operates in the quick service segment, which has braved the economic turmoil to some extent. A recent report by a market research firm, NPD Group revealed that traffic counts for the quarter ended May 31, fell the least by 2% at quick service segment, followed by a 4% drop at casual dining segments, and a 6% decline in the midscale segment.
The cash strapped consumers are trending to lower priced dining options. McDonald’s with its lower priced menu continued to lure budget-constrained consumers. The company in the quick service segment competes with
Yum! Brands (
),
Papa John's International (
),
Chipotle Mexican Grill (
).
We maintain a Buy recommendation on the stock.
