Monday, January 26, 2009

Bullish Media Stories on McDonald's (MCD)

We long ago identified Walmart (WMT) and McDonald's (MCD) as two havens to hide out in as the longer term "Pooring of America" intersected with "the recession" played out. [Dec 26, 2007: Target Shoppers Turning into Walmart Shoppers] [Apr 22, 2008: McDonalds, DuPont Continue the Trend - Overseas Strength Mitigate Weakness at Home] [Jul 23, 2008: McDonald's Continuing to be Dinner of Choice for Pooring Americans]

That was the play about 15-18 months ago - but what is interesting is these have become crowded trades as the "whistlers past graveyards" of fall 2007 - spring 2008 turn into converts once the recession became apparent. Even Ken Heebner of CGM Funds has become a convert in the back half of 2008 [Nov 14: Ken Heebner Moves into Financials Big Time] Both charts have turned negative here of late, especially Walmart's. I'm not sure what the price action actually means in terms of fundamentals for these two - but it is very interesting.

Anyhow, McDonald's is getting a lot of love in the press - which many times means "everyone knows the story" and it's time to move on to the next thing ;) We shall see if we are witnessing recent tops or just resting points in these names. I continue to believe this recession will be a long and dreary one so weakening stocks could either signal (a) I'm wrong and it's going to get better sooner or (b) things are so bad even these bastions of recession are suffering. Or it could simply be that everyone who wants to be in these stocks is finally in.... no new demand driver.

Speaking of.... the company will report earnings today...

New York Times: At McDonald's the Happiest Meal is Hot Profits (what struck me in this story is how Europe has passed the U.S. in revenue during the 2000s) [click to enlarge]

  • CHRIS WARD, 23, didn’t go to McDonald’s much because it wasn’t open late enough for after-hours snacks. Casey Fillian, 32, and her friend Carol Milano, 33, gave up their teenage McDonald’s habit when they became more health-conscious adults. And Russ Green, 47, wouldn’t go to McDonald’s because, among other things, he thought its food was unhealthy.
  • Yet here all four of them are, lined up at McDonald’s one recent morning, lured back by new menu items, longer hours and a sparkling new building that includes flat-screen televisions and video games for children. It replaced a 36-year-old restaurant — weighed down by a sterile, cafeteria-style d├ęcor — with a sleek new building that offers two drive-through lanes, trendy furnishings and lights, wide-screen televisions and Wi-Fi connections.
  • It wasn’t too long ago that McDonald’s, vilified as making people fat, was written off as irrelevant. Now, six years into a rebound spawned by more appealing food and a less aggressive expansion, McDonald’s seems to have won over some of its most hardened skeptics. Month after month, McDonald’s has surprised analysts by posting stronger-than-expected sales in the United States and abroad.
  • John Glass, an analyst at Morgan Stanley, was blunter. “They were just alienating people that wanted to go there, actively dissuading people,” he said, noting the changes to the menu and the fact that McDonald’s stopped grading restaurants on service and cleanliness.
  • At the same time, McDonald’s increasingly became a target for animal-rights activists, environmentalists and nutritionists, who accused the chain of contributing to the nation’s obesity epidemic with “super size” French fries and sodas as well as Happy Meals that offered the reward of free toys.
  • That tattered image was beaten down further by the 2001 best-seller “Fast Food Nation.” At the beginning of 2003, McDonald’s suffered its first quarterly loss in history, and its stock was tanking. Yet by the time a popular, and critical, documentary, “Super Size Me,” about McDonald’s came out in 2004, the company’s comeback was already under way.
  • IN the months and years after the Plan to Win was introduced, restaurants were redecorated and in some cases rebuilt. The drive-through, which accounts for 60 percent of the chain’s business in the United States, was reconfigured to become more efficient. Stores were opened earlier to extend breakfast hours and stayed open longer to capture late-night diners; 34 percent of McDonald’s restaurants in the United States are now open 24 hours a day. McDonald’s scrapped its super-size menu and added healthier options like salads and apple slices, which lured moms and got the critics off its back.
  • Beef consumption was flat, but people were eating more chicken, so McDonald’s “went at chicken hard,” said Ralph Alvarez, the company’s president and chief operating officer. Chicken sales at McDonald’s have doubled since 2002, and it now buys more chicken worldwide than beef, Mr. Alvarez said.
  • In the two years since McDonald’s introduced premium coffee, sales of drip coffee are up 70 percent, Mr. Alvarez said.
  • In foreign markets, McDonald’s largely turned over leadership to native-born employees who had a better feel for local nuances. Europe now accounts for 38 percent of the company’s profit.
****************** McDonald's Defies Downturn
  • McDonald’s is planning to this year create 12,000 jobs and open 240 new restaurants across Europe, it emerged on Friday, as the fast-food chain shows signs of being one of the few global companies to benefit from the financial crisis. McDonald’s plans for expansion in Europe are its biggest in five years....plans to hire 50 people at each of the 240 new restaurants, mostly in Spain, France, Italy, Russia, and Poland.
  • McDonald’s has been one of a handful of leading US companies to thrive globally amid the prevailing consumer gloom – together with Wal-Mart it was the only member of the Dow Jones Industrial Average to see its share price go up last year, by 7 per cent.
  • Mr Hennequin claimed there were “no signs of weakening” in the group’s European business – where comparable store sales rose 7.8 per cent in November – but acknowledged consumers, particularly in Germany and Spain, were favouring the cheapest menu items.
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