Frugal consumers now beating a path to McDonald’s
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McDonald’s Corp. today buffed up its image as a place to hide from recession and financial-market panic.
The company said third-quarter net income rose 11% on a 6% sales boost, as consumers’ new frugality translates into more business for the fast-food titan.
McDonald’s earned $1.19 billion, or $1.05 a share, in the quarter, up from $1.07 billion, or 89 cents, a year earlier. Net income topped analysts’ expectations by 7 cents a share.
Sales totaled $6.27 billion, up from $5.9 billion.
The company said its third-quarter same-store sales in the U.S. rose 4.7%, the biggest gain this year, although that still was a bit short of analysts’ estimates. Foreign sales were even stronger.
In a rarity for corporate America these days, Chief Executive Jim Skinner said he was ‘optimistic’ about the company’s outlook.
Bloomberg News notes:
The results signal that Skinner’s decision to promote iced mochas, $1 iced sweet tea and dollar-menu foods is winning sales from more-expensive restaurants. Consumers worried about their jobs and paying their mortgages have slashed discretionary spending as the credit crunch threatens to push the global economy into a recession. ‘McDonald’s is one of those great plays at this point in time,’ said Keith Wirtz, chief investment officer at Fifth Third Asset Management. Customer visits to restaurants are slowing ‘with one exception, and that’s in the fast-food category.’
The irony here is that by tightening their fiscal belts, Americans may have to loosen the belt on their pants, depending on how many cheap calories they decide to consume at the Golden Arches.
McDonald’s shares were higher at midday despite the broad market’s slump, then were dragged down with the vicious sell-off in the final hour of trading. The stock closed off 95 cents, or 1.7%, at $54.18.
But that counts as a victory on a day when most major stock indexes plunged 5% or more. Year to date the stock is off 8%, compared with a 38.9% drop in the Standard & Poor’s 500 index.
McDonald’s rewarded shareholders last month with a 33% hike in its quarterly cash dividend, to 50 cents a share. The annualized dividend yield now is 3.7% based on today’s closing stock price.
I know it’s comparing apples and oranges, but ... that’s a better yield than what a lot of banks pay on CDs.