McDonald’s Leaves Room for Future Stomach Aches

Despite lingering economic weakness and competitive pressures, McDonald’s (NYSE:MCD) fed investors some good news with its latest financial results.

On Wednesday, the world’s largest restaurant chain announced better-than-expected fourth quarter profit. Net income increased to $1.4 billion ($1.38 per share), compared to $1.38 billion ($1.33 per share) a year earlier. Revenue also edged higher to $6.95 billion from $6.82. Analysts had expected the company to report earnings of $1.33 per share, with revenue of $6.89 billion, according to Thomson Reuters.

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Shares of McDonald’s edged higher in morning trading to reach its highest level since mid-October. Other fast-food names such as Yum! Brands (NYSE:YUM) and Wendy’s (NYSE:WEN) also traded higher. Meanwhile, Domino’s Pizza (NYSE:DPZ) and Burger King Worldwide (NYSE:BKW) traded lower.

Will the momentum last…

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McDonald’s has been focusing on its dollar menu and special promotions such as the McRib sandwich to help boost sales after the company’s first monthly comparable sales drop in nine years last October. Jim Johannesen, chief operating officer, also asked franchisees to stay open on Christmas Day last month to attract customers. He described Christmas as the “largest holiday opportunity as a system.”Ronald McDonald New Feature 300x270

In the fourth quarter, global comparable sales increased 0.1 percent. Same-store sales in the United States gained 0.3 percent, but dropped 0.6 percent in Europe. The Asia-Pacific/Mideast/Africa region was down 1.7 percent. For the full year, global comparable sales increased 3.1 percent in 2012.

“Throughout 2012 we concentrated our efforts behind the global priorities that represent our greatest opportunities under the Plan to Win — optimizing our menu, modernizing the customer experience and broadening accessibility to our Brand,” said McDonald’s CEO Don Thompson. “McDonald’s continued to grow by remaining focused on what matters most to our customers, although our results reflect the impact of the challenging global operating, economic and competitive environment.”

Even though McDonald’s returned $5.5 billion to shareholders through dividends and share repurchases, Thompson left room for stomach aches in the future. He says, “For the near-term we expect top and bottom-line growth to remain pressured, with January’s global comparable sales expected to be negative.”

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