How Long Will McDonald’s Run Last?

by Douglas McIntyre | October 21, 2010 11:01 am

McDonald’s (NYSE: MCD[1]) stock is set to soar again.  The fast food chain announced that it will be raising its dividend again, after another quarter of increased earnings.

The dividend payouts will likely total $1.4 billion.

But, the numbers raise the issue of how long McDonald’s can grow in global markets where it is challenged by Burger King (NYSE: BKC[2]), which was recently taken private, Yum Brands (NYSE: YUM[3]), smaller chains, and local restaurants. McDonald’s will, like any business with massive market share, run up against the limits of its own business.

Revenue was up +6% to $6.3 billion. Net income rose +13% to $1.4 billion, a sign that cost controls are still the major aspect of strong earnings. EPS was up +12% to $1.29.

The world’s largest fast food chain continued to credit new products like McCafe and its fraps as an important ingredient to growth.

McDonald’s U.S. improved segment comparable sales growth and a 7% increase in operating income. McDonald’s Europe delivered comparable sales increases and grew operating income by 3% (12% in constant currencies) in the third quarter. Extending McDonald’s convenience with expanded operating hours helped draw consumers and contributed to the segment’s results.
Asia/Pacific, Middle East and Africa’s (APMEA) third quarter results reflect broad-based strength with strong comparable sales increases in many markets, led by Japan, China and Australia. Across the segment increased consumer demand for McDonald’s in APMEA contributed to the segment’s +22% operating income growth (15% in constant currencies)

McDonald’s has 36,000 stores worldwide now, and it is, because of its leadership, the target of every other operator in the industry. Its menu innovations have been copied by rivals including Burger King. Like Wal-Mart (NYSE: WMT), it is a favorite target of local restaurants.

At +6%, revenue growth was impressive, but Wall St. will look for a weakness in that area as the primary signal that the firm has reached the limits of its universe.

Source URL: https://investorplace.com/2010/10/how-long-will-mcdonalds-run-last/

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