McDonald’s Reports Unimpressive Results

MCDIn what management called a “challenging” fourth quarter, McDonald’s Corp. (NYSE: MCD – $95.26)  reported sales rose 2% from a year earlier to $7.093 billion, slightly below the $7.11 billion call by most analysts. Earnings were $1.40 per share, a penny above consensus and two cents ahead of a year ago.  Global comparable-store sales dipped 0.1%, as a higher average check was offset by reduced guest traffic. Europe was the standout, as sales on the Continent climbed 1% in the fourth quarter. But domestically comparable sales fell 1.4% as limited-time offerings and the revamped Dollar Menu & More were not enough to bring same-store sales into positive territory. Even worse Asia/Pacific, Middle East and Africa sales fell 2.4% due to weakness in Japan and relatively flat sales in China and Australia. With ongoing disruptive weather conditions in most of the U.S., January figures will not be anything to write home about and 2014 will continue to face headwinds from a less-than-robust economy and increased competition. Hence, the share price will do well just to hold its own at this point.  However, conservative investors with a focus on income are definitely the target audience for MCD given that management returned $4.9 billion to shareholders through its well covered dividend – yielding 3.4% – and stock repurchases last year, a figure that is likely to increase in 2014. I also like the company’s impressive balance sheet and earnings growth, albeit at a slower pace than we have seen earlier in the decade. If McDonald’s can earn the $5.93 that the Street is predicting, a forward PE of 16 is reasonable for such a quality holding and a year-end dividend hike is likely. I will maintain my position in the company for now.

MCD

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