McDonald's Goes Bigger -- and Better

McDonaldsMcDonald's (MCD) may seem like the fast-food restaurant of yesteryear, but appearances can be deceiving. The company's latest news suggests that the Golden Arches are headed onward and upward into the future.

The company recently revealed plans for its largest store ever at the 2012 London Olympics. The outlet in Olympic Park will seat 1,500 guests, eclipsing the chain's largest existing restaurant. During the games, this mega-Mickey D's brisk business will likely beat the 20-year reign of the company's current best-selling location in Moscow's Pushkin Square.

McDonald's followed that announcement with even better one: its second-quarter earnings. The Golden Arches put up 15% growth in earnings year over year, providing further proof that the company is executing its game plan superbly in a lackluster economy.

Caffeine and Cold Drinks Quench the Bottom Line

In total, the company reported $1.4 billion in earnings (or $1.35 a share) and sales of $6.9 billion, up 16% from last year. Same-store sales – a key measure of restaurants' performance – climbed 5.6% globally. Each of those figures blew away analysts' expectations, and shares climbed sharply higher in early trading.

Menu additions in recent years have boosted the company's performance, most notably coffee and cold drinks such as smoothies. Thirsty patrons flocking to McDonald's frozen strawberry lemonade helped drive its U.S. sales.

While it has performed admirably, McDonald's still faces many of the same challenges that its rivals do, particularly the rising cost of inputs. The company expects costs in the U.S. to go up as much as 4.5%. Yum! Brands (YUM), the name behind KFC, Taco Bell, and Pizza Hut, expects U.S. expenses to climb 7%. Even the best performers, such as Chipotle (CMG), are seeing rising costs pinch their bottom line. While these top operators can play through these setbacks, struggling peers such as Wendy's (WEN) are getting hurt.

A Bright Horizon for the Golden Arches

Despite pressures such as these, McDonald's has performed well and should continue to do so. And a recession? You'd hardly see it in the company's share price over the last few years. The stock has consistently trended higher.

With massive opportunities in China and India, the company still has plenty of room to expand, meaning that shares – even at 18 times earnings – should still be a solid long-term value. And that tasty dividend? It's only growing bigger and better. Investors should consider buying shares.


Fool.com analyst Jim Royal, Ph.D. own shares of McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and Yum! Brands.

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ieyun313

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August 26 2011 at 2:28 AM Report abuse rate up rate down Reply
john

Hey mazdapub....Don't blame corporations for people getting fat. That is a cop out...It is called personal choice pal. Check into it .. With your logic you might as well blame the sky for hunger and disease. grow up...

July 25 2011 at 11:01 PM Report abuse rate up rate down Reply
john

I'm lovin it!! Go Micky "D"

July 25 2011 at 10:57 PM Report abuse rate up rate down Reply
tigerladdy

I do not eat there very often but I do enjoy an egg and cheese biscuit once in a blue moon. The carmel frappes are really delicious and cheaper then Starbucks.

July 24 2011 at 9:21 AM Report abuse rate up rate down Reply
dvdfrnzwbr

Search Youtube for "Four Year Old Cheeseburger" and "Four Year Old Fries". You might think twice before eating at Micky D's again.

July 23 2011 at 6:06 AM Report abuse rate up rate down Reply
gmcwhite11

i dont eat mickey ds....last time i ate there was sick all nite...their food is as nasty as kfcs...the bugers are paper thin...dont see what people see in them

July 23 2011 at 5:44 AM Report abuse -1 rate up rate down Reply
nr2187

Don't give McDonalds too much flack. At least they are feeding some Americans a quick snack at resonable price.
I'll never forget the time many years ago when I drove my nine passenger station-wagon to a neighboring town to take my daughters and their friends to a highschool football game. When we returned to our city I pulled into a McDonalds and asked if anyone wanted a burger. No one answered. Then, I said, "I'm buying' ...and guess what, everyone wanted one. I happily paid the 13-cents each price...and they seemed to love it. Norb

July 22 2011 at 11:52 PM Report abuse +2 rate up rate down Reply
onthecarousel

I9 DO NOT EAT THE FOOD BUT THE COFFEE IS BETTER THAN STATBUCK$!!

July 22 2011 at 11:39 PM Report abuse +1 rate up rate down Reply
mazdapub

As we're getting bigger and fatter , thanks to these junk-food corporations, all the Taliban has to do is wait for our hearts stop pumping.

July 22 2011 at 10:20 PM Report abuse -2 rate up rate down Reply
richdesbiens

i lost 116 pounds by not eating there over 15 months ago, crap food

July 22 2011 at 8:18 PM Report abuse rate up rate down Reply