The global obesity epidemic is motivating consumers to shift towards healthier and fresher food choices. In order to attract this diversified customers base, McDonald’s Corporation (NYSE:MCD) is rolling out menu changes.
McDonald’s Corporation (NYSE:MCD) is the leading global food service retailer, serving 69 million customers each day in more than 118 countries with 34,000 local restaurants, out of which 80% are franchised. Despite competition from numerous franchises, it is still expanding and is an excellent restaurant investment.
Fundamentals
McDonald’s Corporation (NYSE:MCD) has increased its first quarter earnings year over year, but has failed to meet the market expectations due to weaker international sales. First quarter earning per share are $1.26, up from $1.23 per share in the year-earlier period. Total revenue increased to $6.6 billion from $6.55 billion a year ago. The analysts estimated earnings per share of $1.27 and revenue of $6.59 billion for the first quarter reported by Thomson Reuters.
May sales
In the month of May, McDonald’s Corporation (NYSE:MCD) ‘comparable restaurant sales’ around the world surged 2.6%, better than the 0.6% fall in April. The increase is due to offering for late night breakfast, cheap eats and new menu items such as chicken McWraps and egg white McMuffins. Sales at same restaurants in the United States edged up 2.4%, while this figure is 2% and 0.9% in Europe and Asia respectively.
Israel sales
McDonald’s Corporation (NYSE:MCD) is now refusing to open its fast food outlet in Israel due to a long standing policy of staying out of the occupied territories. The company has more than 180 stores in Israel, and accounts for 70% of Israel’s fast food industry. It entered Israel in 1993, and has grown by nearly nine branches a year. After this decision by McDonald’s Corporation (NYSE:MCD), settler organizations called for an immediate boycott of McDonald’s restaurants, which may hurt it sales.
Stores upgrade
McDonald’s intends to spend more than $1 billion to upgrade its stores interior and plans at 1600 locations this year. It has an investment budget of $3.2 billion, out which $2 billion is for creation of new stores and $1 billion for upgrading current stores. This plan will give it an advantage over its competitors like Yum! Brands, Inc. (NYSE:YUM), which is only spending $1 billion on stores in 2013.
Last year, McDonald’s Corporation (NYSE:MCD) upgraded 2400 stores, and has already upgraded 60% of its stores out of total 34,000 globaly. After upgrading, McDonald’s expects its sales will increase by 6% to 7% this year.
Competition
McDonald’s rivals like Burger King Worldwide Inc (NYSE:BKW) and Yum! Brands, Inc. (NYSE:YUM) are in a race with McDonalds by offering a wide range of unique menus and value deals. Since 2007, Burger King Worldwide Inc (NYSE:BKW) sales have fallen by 12%, but in the same period, McDonald’s total sales have risen by 21%.
Changes in the ownership structure of Burger King Worldwide Inc (NYSE:BKW) are the primary culprit behind the slowdown in global sales. In the past it has twice been purchased by private owners and has twice gone public. McDonald’s has been able to power through all such crises due to its rich culture, and avoided any disruptions in the business.
Foreign food companies have been facing problems in China and McDonald is no different. The company sales have been on a decline China, primarily due to the bird flu outbreak. In the Chinese market, Yum! Brands, Inc. (NYSE:YUM) and Burger King Worldwide Inc (NYSE:BKW) are fierce competitors of McDonald’s. Yum! Brands, Inc. (NYSE:YUM) has been significantly affected by the outbreak because it relies more heavily on Chinese sales. In China, McDonald lags behind Yum! Brands, Inc. (NYSE:YUM) in term of revenue and market. Yum! Brands, Inc. (NYSE:YUM)’s popularity in China is due to its focus on Chinese appetite for fried-chicken menu items at its KFC restaurants.
Strong dividend
According to Forbes, McDonald’s is in Dividend Channel’s top 25 stock list due to strong return and constant dividend hike over the time. The company has a dividend yield of 3.10%. Its current PE on a trailing twelve month basis is 18.38, below the restaurants industry average of 48.03 and its price to book ratio is at 6.52, lower than the industry average of 8.06. McDonald’s share price has risen 9.9% this year, and closed at $99 on Friday.
Final words
Competition in the food market is increasing, but McDonald’s has a broader exposure to the growing international market, and is one of the strongest brands in the world. It has a strong dividend history which is beneficial for its investors. This makes the company a reliable long term investment.
The article Going Strong in a Slow Economy originally appeared on Fool.com is written by Red Chip.
Red Chip has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s. Red is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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