McDonald's misses, currency drags

Mr. Market was certainly not lovin' it, when it came to the McDonald's numbers on Friday. That jingle might be simple, but it certainly sticks. The currency had quite a big impact, and earnings were dampened by as much as a 8 cents per share. But a miss is a miss, the stock sold off aggressively Friday, down 4.46 percent to 88.72 Dollars. The stock is down over five percent in the last month.


Why is this company important to get a handle on global growth though? Well, as per the Morningstar description, it is easy to see why: "McDonald's generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of March 2012, there were 33,500 locations in 119 countries, including 27,100 franchisees/affiliates units and 6,400 company units." So, they employ a lot of people across most of the world and most people with franchise agreements would be feeling how good and or otherwise the global consumer is feeling. As the chief, Don Thompson said on the conference call: "McDonald's is a destination for more than 69 million customers every day because we are for great tasting high quality goods and an increasingly more modern and contemporary restaurants.". 69 million folks a day eat at the company.


Sales were flat when compared to the corresponding quarter this time last year, but when measured in constant currencies (a Mac is sold in Euros in Paris, Berlin and Rome of course) sales rose 4 percent. Operating income sank four percent, earnings per share sank a percent to 1.43 Dollars a share for the third quarter. So far for the year (three quarters) currency headwinds have amounted to 16 US cents, half of that in the last quarter. BUT, and this is a big but too, whilst recently the currency would have been positive for them, the Euro has weakened against the Dollar, McDonald's chief revealed on the conference call that currently October same store sales were "trending negative." That does not exactly sound appealing, now does it? If the expectations are for a flat, or marginally better year, why would you want to pay more than the 16 times current earnings?


What do I like about the company? Well, there is one thing that will always underpin the price, especially in the current environment and that is the dividend. In September the quarterly dividend was upped a whopping ten percent to 77 US cents per quarter which translates to 3.08 USD a year or a yield just shy of 3.5 percent at the current share price. So, as per the note I read, this should provide a floor. But that means nothing to those people who want to buy this company looking for a superior return, better than they can get elsewhere in the market. This company is never going to explode with growth in sales of twenty percent. Nope. But, at current levels it is definitely a buy. An unbroken 36 years of increasing their dividend makes the company attractive as an investment proposition. Their grand plan is to have a store in each neighbourhood. I would say that they are a long way away from that!