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The Oak Brook, Illinois-based company is more or less a household name in the U.S., with offerings such as Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin. The company has more than 32,000 local restaurants serving 58 million people in over 100 countries. About 80% of McDonald's restaurants worldwide are owned and operated by franchisees.
While the economic crisis promoted the eat-at-home habit, McDonald's quickly adapted to the situation with new offerings of food items, discounts and extended hours. The company's strong international base also insulated it from the impact of the slowing U.S. Economy. Last year, the world's leading hamburger chain, a Dow component, also began selling strong coffee to capture market share from Starbucks Corp. (SBUX | Quote | Chart | News | PowerRating). McDonald's is installing counters to sell cappuccino and lattes through 2009.
Although, the company has weathered the economic storm better than its peers, the increasing unemployment is likely to affect the company's results, as about 25% of the company's revenue comes from sale of breakfast items that are picked up by customers on their way to workplace.
Job losses in the U.S. were sharply higher than economists had expected in September, driving the unemployment rate to 9.8, its highest level in 26 years, and pushing the number of people out of work above 15 million. Former Federal Reserve Chairman Alan Greenspan said recently that he expects unemployment rate to cross 10% and remain there for some time.
Besides, the company's slowing comparable sales growth also is a concern. In the third quarter, the company reported moderate comparable sales growth in July and August. The same-store sales for September are expected to be announced today.
Global comparable sales for July grew 4.3%, in comparison with an 8.0% increase last year. U.S. comparable sales for the month rose 2.6%, while in the previous year period, the growth was 6.7%.
The company's global comparable sales grew 2.2% in August. The increase was on top of an 8.5% rise in the same month a year ago. U.S. comparable sales for August rose 1.7%, compared to a growth of 4.5% last year.
The sales growth witnessed now has been from new products, including Angus Third Pounders and McCafe espresso-based coffees, in addition to the continued strength of the company's core menu.
Among other events, last month, the company increased its quarterly dividend by 10% to $0.55 per share, equivalent to $2.20 per share annually. The company said it expects to end the year near the high end of its three-year, $15 billion to $17 billion total cash return target. McDonald's has raised its dividend every year since paying its first dividend in 1976.
In July, the company reported an 8% decline in second-quarter profit and a 7% drop in the quarterly sales, primarily due to negative impact from foreign currency translation. The company's second-quarter profit totaled $1.09 billion, down 8% from $1.19 billion earned a year ago. On a per share basis, earnings dropped 6% to $0.98 from $1.04 in the same quarter of last year. Quarterly revenues amounted to $5.65 billion, a decline of 7% from the previous year's revenue of $6.08 billion.
Bloomberg reported on Wednesday that McDonald's, Burger King Holdings Inc. (BKC | Quote | Chart | News | PowerRating) and Friendly Ice Cream Corp. (FRN | Quote | Chart | News | PowerRating) were accused in a lawsuit of selling chicken knowing that it contains a chemical that can cause cancer even in small amounts. The complaint reportedly seeks class- action, or group, status on behalf of people who bought or ate the grilled chicken from October 2006 to this month. It was filed by Washington-based Cancer Project on behalf of two Connecticut residents.
Among others in the industry, Yum! Brands Inc. (YUM | Quote | Chart | News | PowerRating) said early this month that its third quarter profit rose 18% from last year, helped by strong profit growth in China and the U.S. The company reported net income for the third quarter of $334 million or $0.69 per share, compared to $282 million or $0.58 per share for the year-ago quarter. Total revenues for the third quarter declined 2% to $2.78 billion from $2.84 billion in the same quarter last year.
MCD closed Wednesday's regular trade at $58.33, down $0.59 or 1.00%, on 9.63 million shares. For the past year, the stock traded in the range of $50.44-$64.46.
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