McDonald's can't match year-ago growth

The burger chain faces a tough matchup against its performance in the first quarter of 2012.

By Jim J. Jubak Jan 23, 2013 4:49PM
Close up of fried chicken finger -- AlamyA jump in December sales looks like it bailed out McDonald's (MCD) fourth-quarter earnings. Profit climbed to $1.38 a share from $1.33 in the fourth quarter of 2011. Wall Street analysts were looking for $1.33 a share.

Analysts had forecast a 1.8% drop in December same-store U.S. sales and instead the company reported a 0.9% gain.

The question, if you own McDonald’s (the stock is a member of my Jubak’s Picks portfolio), is why? Do December results represent a one-time boost from the company’s decision to keep more stores open on Christmas than in 2011 and a shift of a limited-time offering of the popular McRib sandwich to December? Or is there something more lasting in the unexpected December increase?

Actually, it looks like the December surprise might be the result of price cuts that McDonald’s implemented in November that opened a small but significant gap between its competitors. The November price cuts came to about 0.75 percentage points. That kept the company’s price increase for the entire third quarter to 2%, according to Credit Suisse. That looks like it was significantly below price increases in the category.

This doesn’t change the calendar on the tough year-to-year comparisons that McDonald’s faces in the beginning of 2013. The earnings increase in the first quarter of 2012 from the first quarter of 2011 came to 6.9%, and I don’t think there’s any way that McDonald’s matches that kind of growth in the first quarter of 2013. In its conference call the company said that it expects global same-store sales to decline in January.

If you own these shares, you own them for the easier year-to-year comparisons that set in after the March quarter.

All the same, McDonald's unexpectedly strong showing in December looks to me like a sign that the company has limited the last half of 2012 resurgence of competitors such as Burger King (BKW) and Yum! Brands’ (YUM) Taco Bell.

As of Jan. 23, I’m leaving my target price at $104 a share.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of McDonald’s as of the end of September. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
Jan 24, 2013 11:18PM
Do more monopoly game type promotions. Buy a McRib value meal, get a Mclottery scratch off ticket. Win a "fries for life" sweepstakes. Buy a filet o fish value meal and get a chance on a new boat. People love to indulge when they might win too.
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