McDonald’s eats rivals’ lunch as U.S. gains

By Lisa Baertlein and Ben Klayman

LOS ANGELES/DETROIT (BestGrowthStock) – McDonald’s Corp (MCD.N: ) is putting more distance between itself and many fast-food rivals as smoothies and its breakfast Dollar Menu have lured more diners into its U.S. restaurants.

Sales at established restaurants also recovered in Europe, its top market for revenue, after an August decline in France disappointed investors.

The world’s largest hamburger chain reported September sales at established restaurants far above Wall Street’s expectations and forecast a jump in October that would also outpace analysts’ targets.

Prices for beef and other key ingredients are rising, but Chief Financial Officer Pete Bensen said on a conference call that McDonald’s could easily cope with those increases and push through some menu price increases next year.

Shares of the company, which also posted a stronger-than-expected quarterly profit, were up almost 2 percent at $78.82 after hitting an all-time high of $79.48.

“McDonald’s is full-steam ahead, and they’ll continue to take market share domestically and on an international basis,” said Telsey Advisory Group analyst Pete Saleh.

Executives said they expect worldwide sales at restaurants open at least 13 months to rise 5 percent to 6 percent in October. That was ahead of growth forecasts by Saleh of 5 percent and by Janney Capital Markets analyst Mark Kalinowski of 3.7 percent.

McDonald’s has been stealing U.S. market share from rivals like No. 2 hamburger chain Burger King, which is now private after its sale this week to 3G Capital.

Saleh expects those market share gains to accelerate as Burger King’s new owners study the business and put together a strategic plan.

McDonald’s shares hit a session high of $79.48 and were up 1.8 percent at $78.84 in afternoon New York Stock Exchange trading. The stock hit its previous high of $78.14 on Wednesday.

STRONG SEPTEMBER

September same-store sales rose 6.1 percent worldwide, beating analysts’ expectations for a 3.8 percent increase.

The Asia-Pacific, Middle East and Africa — or APMEA — unit had the biggest rise at 6.2 percent, followed by the United States at 5.7 percent and Europe at 4.9 percent.

McDonald’s continued to significantly increase traffic in the United States, and in August its restaurants there drew the most customers in more than 20 years, Chief Executive Jim Skinner said on the conference call.

Earlier morning hours and new Angus snack wraps also contributed to the increase in the United States, which accounts for 35 percent of corporate revenue and is the company’s second-biggest market.

Sales in Europe, which accounts for just above 40 percent of revenue, outperformed with help from spiffier restaurants and new products like frappes even though consumers overall have cut down on outings to fast-food restaurants. McDonald’s has a bigger footprint in Europe than any other U.S. restaurant operator.

Executives said Europe’s disappointing August sales were a “glitch” resulting from failing to run a popular Coca-Cola glass promotion in France.

Third-quarter net income rose 10 percent to $1.39 billion, or $1.29 a share. Analysts on average were expecting $1.25 per share, according to Thomson Reuters I/B/E/S.

Revenue, including sales from company-owned restaurants plus royalties from franchisees and other fees, rose 4 percent to $6.3 billion, topping the $6.23 billion analysts had expected.

While McDonald’s leads rival Yum Brands Inc (YUM.N: ) in the United States, it is playing catch-up to the parent of KFC and Pizza Hut in China, which is posting the fastest economic growth of any major global economy.

Most of Yum’s nearly 3,700 China restaurants are KFC. Yum has more than twice as many restaurants in China as McDonald’s.

CEO Skinner said McDonald’s third-quarter same-restaurant sales were up 12.7 percent in China.

Earlier this month, Yum said sales at established restaurants in China rose 6 percent for its third quarter, which ended September 4.

Yum is Janney’s top pick, said Kalinowski, who has “buy” ratings on both that stock and McDonald’s shares. “McDonald’s, we think, has a little bit less risk involved than Yum,” he said.

At Wednesday’s close, McDonald’s shares were up 34 percent year to date, while Yum had gained 39 percent. That compares with a 27 percent gain in the Dow Jones U.S. Restaurant and Bars index (.DJUSRU: ).

(Reporting by Ben Klayman; additional reporting by Lisa Baertlein, editing by John Wallace, Matthew Lewis and Lisa Von Ahn)

McDonald’s eats rivals’ lunch as U.S. gains