McDonald's beats the street, stock still a buy

Although Apple stole the limelight one of our other recommended stocks released fourth quarter and full year results yesterday, namely McDonald's. For the quarter EPS came in at $1.38 which was above consensus of $1.33 while December same store sales were flat. Asia which is obviously a big growth region has stalled dramatically largely due to the big chicken scare they had a few months ago. It has had a larger impact on KFC but during what has already been a tough time for fast food restaurants in the region, McDonald's also felt the pain.


For the full year earnings came in at $5.36 which was up 2% from 2011. Remember that this has been a tough year for the company. They have heavy exposure to Europe which has been slow and China hit a big speed bump half way through the year. For the whole year same store sales increased 3.1%. 3.3% from the US, 2.4% from Europe while the developing world only grew 1.4%.


Earnings for next year are expected to come in at around $5.78. Trading at $93.48 they are on 16 times next year's earnings which compared to their competitors is actually quite cheap. The company has big ambitions for 2013. This from the CEO Don Thompson.


"In 2013, we plan to invest about $3.2 billion of capital to open between 1,500 - 1,600 new McDonald's restaurants and to reinvest in our existing locations, including reimaging more than 1,600 locations worldwide. We are confident that now is an opportune time to invest in our restaurant portfolio in ways that will yield value for all stakeholders in the future."


Talk of reimaging reminds me of a friend who just went to France for his end of year holiday. He told me that the McDonald's he went to in Paris had completely ditched the service counter. Instead there were kiosks or swipe machines where you press a few buttons, swipe your card and then collect your food at the next point, much like a drive through. This makes getting your food easier and quicker while McDonald's have less labour costs. I am not sure the Labour Unions here would accept that with open arms but it does show you how much room for innovation there still is.


And remember my piece last week on Famous Brands which looked at the Yum! Brands comments about Africa? How KFC has become aspirational in these countries and how a couple even got married in a KFC in Lagos. Well, McDonald's is the same and as the restaurants get built, developing market consumers will come flocking. We are still buyers of McDonald's at these levels.