McDonald’s Earnings Jump

Zacks Investment Research
updated | Zacks.com

McDonald’s Corporation (NYSE:MCD) has posted robust first-quarter 2010 results, driven by value offerings and premium products and a rise in comparable-store sales across all regions, sending the stock up 31 cents or 0.4% to $70.65 in pre-market trading.

The quarterly earnings of $1.03 per share, excluding one-time items, outpaced the Zacks Consensus Estimate of 96 cents, and surged 24% from 83 cents posted in the prior-year quarter.

On a reported basis, including one-time items, earnings came in at $1.00 per share, up 15% from 87 cents delivered in the year-ago quarter.

The world’s largest hamburger chain, McDonald’s said that revenue for the quarter climbed 10% to $5,610.1 million and increased 4% in constant currencies, reflecting comparable-store sales growth and expansion, partially offset by the impact of the refranchising strategy in certain major markets.

Revenue from company-operated restaurants rose 9% to $3,803.1 million, whereas revenue from franchise-operated restaurants jumped 13% to $1,807 million. Total operating income soared 20% to $1,674.1 million; and increased 13% in constant currencies.

McDonald’s global comparable-store sales continue to grow, while maintaining healthy margins on expanding market share. Global comparable-store sales rose 4.2% during the quarter with the U.S. sales up 1.5%, Europe up 5.2% and Asia/Pacific, Middle East and Africa (APMEA) up 5.7%.

The new menu offerings — including value-based drinks, frappes and the McCafe premium coffee line-up — have boosted the U.S. comps and operating income (up 12%). McDonald’s also began offering its Breakfast Dollar Menu to boost sales, as heavy job losses have lowered restaurant traffic in the mornings.

In Europe, the U.K., France and Russia led operating income growth of 23%. Premium product innovation, daypart extension and its restaurant re-imaging program continued to drive market share gains. In APMEA, operating income jumped 27%, led by Australia and China.

Total company-operated restaurant margins for the quarter expanded 200 basis points to 18.2%. Restaurant margins increased 210 basis points to 20.4% in the U.S., 200 basis points to 17.3% in Europe, 220 basis points to 18% in APMEA, and 370 basis points to 15.9% in Other Countries (Canada and Latin America).

McDonald’s and other fast-food chains, like Burger King Holdings (NYSE:BKC), Yum! Brands (NYSE:YUM) and Chipotle Mexican Grill (NYSE:CMG) have been faring better than casual and upscale dining restaurants, as budget-constrained consumers tend towards lower-priced dining options.

During the quarter, MCDonald’s bought back 6.7 million shares for $427.1 million and paid a quarterly dividend of $592.0 million (or 55 cents a share).

The Oak Brook, Illinois-based McDonald’s currently operates 32,488 restaurants in over 117 countries.

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