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HenryTo
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 Posted: Fri Jun 23, 2006 11:15 am Post subject: McDonald's (MCD) |
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Please read our latest mid-week commentary regarding the development of the highway system in China before reading the following. Also note that McDonald's and fast food in general really took off after the development of the highway system in the U.S. - not to mention the rising middle class as many of them bought automobiles and went on road trips. The following development (article courtesy of Bullmarket.com) - assuming the partnership pans out - is HUGE for MCD.
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McDonald's Takes the Fast Lane to Restaurant Growth in China
Thursday June 22, 10:25 am ET
Peter Topolewski, BullMarket.com
Like Starbucks (Nasdaq: SBUX - News), fast-food giant McDonald's (NYSE: MCD - News) sees tremendous opportunity in China, a land of more than one billion potential consumers. And like Starbucks -- which envisions China one day becoming its #2 market behind the U.S. -- McDonald's has expanded cautiously as it tries to find a balance between growth and finding the right employees, menus, promos, and locations. Things haven't been going especially well for McDonald's, however, as rival Yum Brands (NYSE: YUM - News) has more than 2x the locations (led by its KFC unit) and has grabbed market share over the past couple of years. With the 2008 Summer Olympics in Beijing just two years away, the company is intent on putting its Chinese operations on a growth trajectory, since it is a major sponsor of the Beijing games. Today it announced a deal that's aimed at helping it achieve this goal.
McDonald's announced that it will place drive-through restaurants at China Petroleum & Chemical (NYSE: SNP - News) gas stations. State-owned Sinopec, as it is known, is the largest gas retailer in the country with about 30,000 locations. The firms didn't offer a lot of details on the agreement, but it is clear from information given in various interviews that McDonald's isn't about to have 30,000 new restaurants any time soon. Currently with 760 in China, McDonald's hopes to have 1,000 by 2008 (compared to 1,600 KFC outlets). The company expects more than half of its new restaurants will be drive-through outlets, joining the three it has opened in China since December.
There's plenty to like about this move. The first is the company's choice of partner. By teaming up with Sinopec, McDonald's has overcome one of the largest hurdles facing foreign companies eager to expand in China: real estate. Starbucks has emphasized that location is a key to its success in the country, and it appropriately takes great care in choosing where to add stores. For Yum, meanwhile, availability has been a bigger issue, especially when it came to exploring the drive-through market. In Sinopec, McDonald's has a built-in inventory of 30,000 locations in urban, suburban, and rural locations to choose from.
The drive-though theme is no accident, as the deal is very much focused on the country's surging interest in cars. With sales in what are known as second- and third-tier cities now catching on in a big way, China is in the midst of an auto boom. Car sales last year nearly matched those in Japan. Although the sales growth rates in the industry have cooled from the 35% pace in 2003, the auto industry has a lot of growth yet ahead, as only eight out of every 1,000 Chinese own a car, versus 900 of every 1,000 Americans. Domestic sales are expected to approach nearly nine million annually by 2010. Sinopec is keeping pace by adding about 500 new stations a year.
The small percentage of car owners in China makes car ownership a striking status symbol, something McDonald's can appeal to with its drive-through stores, at least in the early stages of the boom. Keeping people in their cars to pick up and eat food could be a great "in" for the company, as Chinese currently very much prefer to dine in at restaurants. The quick "in and out" service of a drive-through could also appeal to another growing phenomenon in China, the rushed business person (which carries its own status symbol element).
For all these positives, the drive-through expansion isn't necessarily going to be a Sunday drive, however. Rival Yum has been slow to advance the model since opening the first drive-through in the country in 2002. Sales at drive-through KFC stores haven't lived up to expectations.
Since then it seems that times have changed, and perhaps the McDonald's approach just works better. The company has launched major initiatives that aim at making the stores a place to stop, relax, eat, and surf the Web. That's not necessarily dichotomous to the drive-through growth plan on tap in China. If done right, each approach can win over the different sets of would-be customers. The formula has worked remarkably well in the U.S. Although it's dangerous to simply transplant a winning formula in one country to others, McDonald's is smart enough to take the seed of a successful idea and build around it appropriately for local conditions. So far, the early returns from its three drive-throughs in operation in China have been encouraging. The firm said that drive-through customers generate about 30% of sales at the three stores that have the car friendly feature. That's well below the 60% rate at U.S. stores, but a strong showing for a country with far fewer drivers and whose diners are known to prefer eating in. Already, the company has said that sales at Chinese drive-throughs are higher than at the average store in the country.
Nonetheless, the Sinopec deal is about more than drive-throughs, believe it or not. Sinopec stations are and will be increasingly located along the country's network of freeways and highways, which are being built out in one of the largest transportation projects in world. Cars and trucks pull into these stations, but so do buses, which are becoming a more popular form of travel as roads improve. The buses don't stop for gas most of the time, but they stop to give passengers a break. One busload of passengers is the equivalent of about a dozen cars, and at these popular freeway rest stops, most of the passengers are looking for something to eat. With Sinopec, McDonald's has an opportunity to satisfy that hunger throughout the country.
The potential payoff from this pact with Sinopec won't be rolling in a few weeks from now, but if executed successfully, the payoff will be rolling in for years, as Sinopec's 30,000 stations provide a very long runway for store expansion in China -- enough to make China the company's #2 market in the years ahead. In fact, this could be one of those deals that McDonald's shareholders look back upon many years down the road as a pivotal decision by the firm. We're not ready to declare success yet, but the potential is there, with little downside risk attached. That alone makes this an astute move by McDonald's. If the partnership works as well as it could, the deal with Sinopec will eventually look brilliant.
McDonald's and Starbucks are Bull Market Report Recommended List Stocks.
Peter Topolewski is the Managing Editor of The Bull Market Report. He does not have any long or short positions in any company mentioned. Indie Research has a disclosure policy.
About BullMarket.com: The Bull Market Report is a daily email newsletter focused on long-term growth, value, and income-generating investments. One of the longest-running online investment newsletters available, it provides unbiased research and actionable daily market commentary. Launched in 1997, its Recommended List of stocks has outperformed the S&P 500 since inception. Click here to start your free 14-day trial or call 1-888-278-5515. |
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HenryTo
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| Posted: Thu Mar 22, 2012 2:00 pm Post subject: |
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Morningstar on MCD's latest CEO reshuffling.
| Quote: | | On Wednesday, McDonald's MCD announced that CEO Jim Skinner will step down June 30 and will be replaced by current president and COO Don Thompson. We don't find this announcement surprising, as it had been widely assumed that Thompson would step into the role following Skinner's retirement. We believe this transition will be seamless, as Thompson has been a strong advocate of McDonald's and Skinner's "Plan to Win" strategy, which prioritized menu innovation, modernized locations, and daypart expansion the past several years. Additionally, Thompson had been a critical influence in the development of McDonald's McCafe beverage program, and we're intrigued by new ways to enhance restaurant productivity under his stewardship. There is no change to our $100 fair value estimate based in this news, and we find the shares modestly undervalued at current prices. |
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HenryTo
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HenryTo
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| Posted: Fri Oct 21, 2011 2:28 pm Post subject: |
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Morningstar on MCD's 3Q earnings:
| Quote: | | McDonald's MCD maintained its strong momentum during the third quarter, with same-store sales coming in modestly ahead of our estimates and consensus across all regions (including 4.4%, 4.9%, and 3.4% comparable sales gains in the U.S., Europe, and Asia/Pacific, Middle East, and Africa regions respectively) and solid profitability increases (consolidated operating income grew 14% for the quarter, or 8% excluding favorable currency translation, and margins expanded 15 basis points to 33.4%). It also appears that this momentum is continuing into the fourth quarter, with consolidated global comparable sales expected to increase 4%-5% in October. With McDonald's thriving in various economic climates across the globe, we have even greater conviction in our wide moat rating and believe the stock is best suited for investors looking for exposure to a rapidly expanding global middle class but also wanting protection from market volatility and still-elevated food cost pressures. With its strong brand name and economies of scale, we expect minimal sales impact from potential austerity measures in the United States or Europe, even if McDonald's should announce selective price increases during its conference call. Elevated commodity costs may keep margins in check through the first half of 2012 (though the impact to McDonald's should be less severe than the rest of the industry thanks to strong relationships with suppliers), but as these pressures ease, we believe the stage will be set for even greater earnings and cash flow upside. We plan to make a few minor adjustments to our model following Friday's conference call, but we do not anticipate a material change to our $92 fair value estimate. While the stock is trading at only a modest discount to our fair value estimate, we believe it may be attractive to income investors looking to adopt capital-preservation strategies, especially with an annual dividend that yields roughly 3% after a 15% increase in September. |
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HenryTo
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| Posted: Mon Jul 25, 2011 11:18 am Post subject: |
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Morningstar on MCD's 2Q earnings:
| Quote: | McDonald's MCD dominance in the global quick-service restaurant category was once again confirmed by strong second-quarter results, including a consolidated comparable sales increase of 5.6%, operating profit growth of 11% excluding currency adjustments, and earnings per share of $1.35, modestly ahead of our internal expectations and consensus estimates. More important, our stance that a wide-moat name like McDonald's is one of a few restaurant operators positioned to withstand commodity cost pressures across the globe and still deliver operating margin expansion this year continued to play out, as consolidated operating margins grew 70 basis points to 31.7% for the quarter despite a 120-basis-point increase in food and labor costs at company-owned restaurants. With the robust second-quarter showing, revenue growth, cash flow, and earnings per share are all trending ahead of our full-year estimates and we plan a modest increase in our fair value estimate. Shares appear fairly valued--trading at 17 times our preliminary 2012 EPS estimate and an enterprise value/EBITDA estimate of 11 times--but we still view McDonald's as suitable for investors looking for exposure to the restaurant category but also wanting stability in what could be a more volatile second half of the year for the industry, amid commodity cost pressures and menu price increases.
McDonald's consistent execution across almost all markets has been nothing short of remarkable. In the United States, the launch of new products and beverages (the new frozen strawberry lemonade product, in particular), paired with effective marketing messaging, drove strong 4.5% comparable sales growth that gained momentum throughout the month and probably continued into July. Europe restaurants continued to benefit from reimaging efforts, which helped to drive 5.9% comparable sales and 10% increase in operating profits in constant currencies; this added to our confidence in the company's ability to sustain top-line momentum as reimaging efforts are accelerated across other geographies. Results from the Asia Pacific, Middle East, and Africa segment remained strong, led by continued momentum in China (consistent with results from Yum Brands YUM and other consumer discretionary companies in the area). Comparable sales from APMEA increased 5.2% while operating income grew 19% in constant currencies, and we expect similar trends to continue throughout the back half of the year. Food costs pressured company-operated restaurant margins, which fell 90 basis points for the quarter to 19.0%, but the company still drove enough selling, general, and administrative leverage on the strong comparable sales growth to drive modest operating margin expansion for the quarter. Profitability gains will probably be less pronounced this year, but we still expect around 50-75 basis points in operating margin improvement this year compared with the 31.0% posted in 2010. |
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HenryTo
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| Posted: Mon Jan 24, 2011 7:11 pm Post subject: |
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Morningstar on MCD's 4Q earnings:
| Quote: | | With global comparable sales growth of 5.0% and operating margins of 30%, McDonald's MCD put further distance between itself and other quick-service restaurant peers during the fourth quarter. Unfavorable weather may have pressured December comparable sales results in the United States and Europe, but management's preliminary January comparable sales figures (up 4%-5%) are consistent with our mid-single-digit growth forecast for 2011. We plan to make a few minor adjustments to near-term assumptions based on management's commodity cost, selling, general, and administrative expense, and tax rate guidance for 2011, but we do not anticipate a material change to our fair value estimate. Our thesis that McDonald's will continue to outperform its rivals thanks to new menu innovations, reimaging efforts and other restaurant upgrades, and unrivaled economies of scale remains intact. However, we think the stock's current valuation (trading at 16 times our forward fiscal-year earnings per share estimate, an enterprise value/EBITDA of 10 times, and a free cash yield of 4.8%) appropriately captures the firm's competitive position and growth prospects. Looking forward to 2011, we believe new platforms (including new McCafe/beverage product extensions and new portable menu items) and ongoing restaurant reimaging efforts will have a meaningful impact on the top line, with comparable-store sales growth remaining in the mid-single-digit range for the year. Reimaging efforts, coupled with additional menu developments across all price tiers and daypart expansion, should also lead to robust comparable-store sales in Europe and the Asia/Pacific, Middle East, and Africa segment (though we continue to believe unemployment rates may result in comparable sales in Europe that moderately lag the company average by a few percentage points). We've also factored in higher commodity costs into our 2011 estimates, roughly in line with management's full-year outlook for a 2.0%-2.5% increase and 3.5%-4.5% increase in input commodity costs in the U.S. and Europe, respectively. Operating margin gains will probably be less pronounced in 2011 than they were in 2010, but McDonald's considerable bargaining power and diligent focus on labor and other operating expenses should position the firm to better weather these cost headwinds than rivals. As such, we believe mid-30s operating margins are achievable in 2011. |
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HenryTo
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| Posted: Fri Oct 22, 2010 11:56 am Post subject: |
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Morningstar on MCD's 3Q earnings:
| Quote: | | McDonald's MCD continued to fire on all cylinders during the third quarter, with comparable-sales gains and increased profitability across all geographic regions. Momentum has carried into the fourth quarter--management expects October global comparable sales to grow 5%-6%--and we remain comfortable with our full-year outlook of 5% global comparable-store sales growth and consolidated operating margins around 31%. We plan to make a few adjustments to our model based on the quarterly results, but they will not be material enough to sway our fair value estimate. We think McDonald's current valuation (17 times our forward fiscal-year EPS estimate, an enterprise value/EBITDA of 12 times, and a free cash yield of 4.6%) appropriately reflects the firm's current momentum . However, given its consistent fundamentals, we would require only a modest margin of safety before taking a position in McDonald's if concerns about commodity costs put undue pressure on the stock. With three quarters of fiscal 2010 in the books, we turn our attention to fiscal 2011. In the United States, we believe new product platforms (smoothies and frappes, in particular) and store reimaging efforts will continue to have positive impact on the top line, with comparable-store sales growth remaining in the midsingle digits next year. Reimaging efforts, coupled with additional menu developments across all price tiers and daypart expansion, should also lead to robust comparable-store sales in Europe and the Asia/Pacific, Middle East, and Africa segment (though unemployment rates and austerity measures may result in comparable-store sales in Europe that lag the company average by a few percentage points). We've also factored in rising beef and other commodity costs into our estimates for next year and expect operating margin gains to be less pronounced in 2011 than they were in 2010. However, we believe the firm's considerable bargaining power over suppliers and diligent focus on labor and other operating expenses position McDonald's to better weather these cost headwinds than its rivals. |
Last edited by HenryTo on Mon Jan 24, 2011 7:11 pm; edited 1 time in total |
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HenryTo
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| Posted: Tue Oct 12, 2010 12:20 pm Post subject: |
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MCD offers weddings in Hong Kong:
http://www.cnngo.com/hong-kong/life/mcdonalds-hong-kong-offers-weddings-494226
| Quote: | The cost will be a few thousand Hong Kong dollars, depending on what guests order on the spot. It’s unlikely that the couple will be able to book the entire restaurant for their wedding, but at that price, who cares if there are babies screaming in the booth next doors?
The idea came about when one couple who met and dated at McDonald’s held their wedding party at the Admiralty branch this year, according to McDonald's Hong Kong director of corporate communications and relations Helen Cheung.
Cheung tells the South China Morning Post that the chain has been getting 10 calls a month from people who wanted to throw their wedding bash at McDonald's joints. |
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rffrydr
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| Posted: Thu Sep 23, 2010 2:28 pm Post subject: |
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I wouldn't be surprised that the buying interest that surfaced this morning was motivated by this. If you can't stand 3.5% from MickyDees (with a buyback program behind you) you stand equities period.
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HenryTo
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| Posted: Thu Sep 23, 2010 11:51 am Post subject: |
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Morningstar on MCD's latest dividend increase:
| Quote: | | On Thursday, McDonald's MCD announced an 11% increase in its quarterly dividend to $0.61 per share ($2.44 annualized). We will update our financial model to reflect the news--our model had previously contemplated a 5% increase in the annual dividend this year--but it will not affect our fair value estimate. McDonald's is the latest in a long line of consumer-related firms to announce dividend increases over the past several weeks, including Kroger KR and Yum Brands YUM. We view the announcement as a confirmation of the firm's excellent cash flow generation abilities and a signal of management's relative comfort with macroeconomic and industry operating environments. Although McDonald's shares are trading at a modest premium to our fair value estimate, we find the dividend yield (which currently stands at 3.3%) and ongoing share-repurchase activity compelling, especially for investors still harboring reservations about the direction of the macroeconomic environment. In total, McDonald's plans to return about $5 billion in cash to shareholders during 2010 through dividends and share repurchases. With our expectations of about $3.5 billion in free cash flow this year (even after a year-over-year increase in capital expenditures for the restaurant reimaging program) and $1.7 billion of cash on the balance sheet as of June, we believe McDonald's has more than enough liquidity to accommodate these shareholder-enhancing activities. We are confident th at management will continue to evaluate the best ways to drive long-term shareholder value, and we still think there is room for McDonald's to increase its long-term dividend payout ratio over time. |
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rffrydr
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| Posted: Fri Jul 23, 2010 5:47 pm Post subject: |
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Anyone know how much that hot hot stock "Chipotle" is still on McDonald's balance sheet?
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HenryTo
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| Posted: Fri Jul 23, 2010 11:21 am Post subject: |
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Morningstar on MCD's 2Q results:
| Quote: | | McDonald's MCD continued to outperform its peers in the second quarter, supporting our view that its tremendous scale and global brand will position the firm to thrive against any economic backdrop. We believe new beverage platform initiatives, including the nationwide rollout of frappes and $1 fountain drinks, had an additive impact on second-quarter results in the United States, which should continue in the back half of the year with the introduction of fruit smoothies. Internationally, results were helped by reimaging efforts in Europe as well as increased value menu offerings and day part expansion in Asia. The results did not materially differ from our expectations, and we will maintain our fair value estimate. U.S. comparable sales growth accelerated on a sequential basis to 3.7% (compared with 1.5% in the first quarter), led by the aforementioned beverage platform initiatives, core strong demand in core menu items, and the continuation of the dollar menu. Although the U.S. quick-service restaurant industry continues to be plagued by high unemployment rates among its core audience and pervasive discounting, we remain confident in our 3% comparable sales forecast for the full year. Despite unfavorable foreign currency translation, Europe comparable sales results remained flat on a sequential basis at 5.2%, driven by regional strength from the France, Russia, and the United Kingdom as well as reimaging efforts across much of the chain. There is no change to our full-year expectations of mid-single-digit comparable sales growth in McDonald's Europe segment. Australia and China helped to drive 4.6% comparable sales growth from the Asia Pacific, Middle East, and Africa segment, a trend we expect to continue in the back half of the year. Profitability gains continued to impress in the second quarter, as the consolidated operating margin grew almost 130 basis points to 31%. Although we expect beef and other commodity prices to rise in the back half of the year and anticipate a mildly negative foreign currency impact, the firm remains on track to post modest operating margin gains in 2010 through diligent management of labor and other operating expenses. |
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rffrydr
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| Posted: Thu May 06, 2010 1:14 pm Post subject: |
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Just bought some MicKeeDee debt.
Everything is substantially wider. McDonalds is 15bps wider. AT&T is 25bps wider. These would be huge moves for a high-yield CDS contract in a normal day. McDonalds usually doesn't move this month in 3 months.
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HenryTo
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| Posted: Wed Apr 21, 2010 2:04 pm Post subject: |
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Morningstar's latest earnings report on MCD:
| Quote: | | McDonald's MCD got off to a strong start in 2010 with a solid recovery in U.S. comparable sales growth, sustained momentum in international sales, and impressive operating margin gains in its first quarter. We remain confident that McDonald's competitive advantages--including a universally known brand and unparalleled scale advantages--position the firm to thrive under any economic environment. There is no change to our fair value estimate, as the firm is on track to meet our full-year forecast. After posting flattish U.S. comparable sales in January and February, McDonald's came back strong in March with 4.2% growth, thanks to a general increase in consumer optimism as well as menu innovations such as frappes, value-priced beverages, and the breakfast dollar menu . We continue to anticipate low- to mid-single-digit comparable sales growth in the United States during 2010. There were also several reasons for optimism in Europe, as McDonald's continued to outperform other quick-service restaurant chains across the Continent (including key markets such as France, Russia and the United Kingdom). Asia/Pacific, Middle East, and Africa results were also encouraging, including further improvement in China comparable sales trends. There is no change to our full-year expectations of mid-single-digit comparable sales growth in McDonald's international segments. The 220-basis-point increase in consolidated operating margins to 29.8% was the highlight of the quarter, in our view, driven in large part by favorable food and paper commodity prices. Although we expect commodity prices to rise during the back half of the year, we believe the firm will offset most of these pressures through diligent management of labor and other operating expenses. We continue to project modest operating margin gains in 2010. |
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HenryTo
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| Posted: Sun Nov 08, 2009 10:21 pm Post subject: |
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For MCD, every second spent in the cooking or ordering process is worth millions of dollars. Also behold the self-serve kiosk (personally, I can't wait for that to happen):
http://www.bloomberg.com/apps/news?pid=20601109&sid=aGL2uS5ybOyk&pos=14
| Quote: | At the Innovation Center, 20 miles (32.2 kilometers) southwest of McDonald’s Oak Brook, Illinois, headquarters, a crew spent years testing and incorporating into the workflow an automated soda fountain that fills cups as soon as an order is placed, Stratton, 54, said. They added refrigerated storage below the McCafe coffee makers after realizing that drinks would require more milk.
The team is now experimenting with handheld devices that would allow workers to come from behind the counter to short- circuit long lines. A self-serve kiosk, on trial in Europe, may prove popular with diners seeking to customize meals; the turnoff may be the time needed to read screens of choices.
New software would update the complicated abbreviations of the touch-screen register with simply labeled, icon-like pictures of food. The system, which is in about 5,000 restaurants out of the company’s 32,000 locations, is easy to learn and may cut as many as 10 seconds off workflow, said Laurie Gilbert, the center’s director. |
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HenryTo
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| Posted: Thu Oct 22, 2009 8:00 pm Post subject: |
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I have to admit - I like the new core menu too - and I hardly eat MCD anymore. Following is Morningstar's latest take on MCD's earnings:
| Quote: | First Impression of McDonald's 3Q | 10-22-09 | 9:42AM
McDonald's MCD served up impressive sales and profitability in its third quarter, solidifying our beliefs about the firm's ability to withstand global economic pressures. There is no change to our fair value estimate.
Global comparable sales growth 3.8% was modestly lower than in the previous quarter, but we were encouraged by the accelerating comparable sales across all geographies during September. By region, comparable sales grew 2.5% in the United States, outperforming most of the quick-service restaurant category, driven by a favorable consumer acceptance of core menu items and contribution from new items such as Angus Third Pounders and McCafe espresso-based drinks. In Europe, comparable sales increased 5.8% on a local currency basis, indicating that McDonald's outpaced its peers in this region as well. The Asia Pacific, Middle East, and Africa segment also delivered encouraging comparable sales growth of 2.2% on a local currency basis, highlighted by strong results in China and Australia. Despite a decline in informal eating out across the globe, management indicated that consolidated October comparable sales were likely to remain positive.
McDonald's consolidated operating income margin increased 290 basis points to about 32%, even with a modestly negative impact from foreign currency translation, demonstrating the firm's ability to manage costs in a difficult environment. We expect operating margins to remain strong over the near term, helped by easing commodity costs and a weaker U.S. dollar. |
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