McDonald's - Making Happy Meals and Happy Investors
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I bought my daughter her very first Happy Meal yesterday. At first I joked around about her finally getting a taste of "real" American cuisine, but then I started thinking about how large of a part McDonald's (NYSE: MCD) really plays in the national culinary landscape. While I'd never claim that McDonald's or any other fast food restaurant is at the top of the food chain so to speak when it comes to quality American restaurants, fast food certainly does seem to have made its way into the American cultural identity and makes big money as a result of it.
According to Technomic Inc's sales figures that were released back in March, McDonald's brought in $34 billion in 2011. To put this in perspective, second-place Wendy's (NASDAQ: WEN) brought in $8.5 billion while third-place Burger King brought in $8.4 billion. While competition between Wendy's and Burger King is obviously fierce with Wendy's pulling in front for the first time, it's rather telling as to the power that McDonald's has in the fast food sector since its 2011 earnings is more than twice that of its two closest competitors combined.
Impressive figures aren't always worth much by themselves, of course; just because a company earned a lot of money in one year doesn't necessarily mean that its earnings are on the rise. Fortunately for McDonald's shareholders, however, the company has actually been doing fairly well when the numbers are broken down. Its Q1 2012 earnings showed a 5% increase in net income, and has been showing similar gains for nearly two years now.
The future looks bright for the home of the Happy Meal as well as they seem to be focusing largely on limited-time products and a shifting of menu items to adjust for rising commodities costs. McDonald's has made a few changes to its menu so that items with a lower production cost such as wraps are featured in Extra Value Meals while a few more costly items have been moved off of the McDonald's Dollar Menu. Limited-time items such as the recent Chicken McBites and the current Cherry Berry Chiller are helping to draw in new customers eager for something different, with the availability of some items being linked to harvest seasons so that they aren't as costly to produce. Much like the McRib makes an appearance when the price of pork drops, it's likely that some of these items will show up again next summer when fresh fruit and other ingredients are easier to source at a low price.
Though McDonald's is down from it's 6-month high of $101.74 back in January, the company's earnings are still falling in line with Wall Street expectations. Without a major scandal, earnings are also unlikely to fall off any time soon as there are several more limited-time promotions planned for this year to help draw in customers. While McDonald's isn't likely to be the most exciting stock in your portfolio, the company's history of profit increases and its utter domination of its competition mean that a slow but steady investment that could easily continue to succeed for years to come.
Croaxleigh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.