McDonald’s posts 53 percent jump in income; stock at highest since 2000 | VailDaily.com
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McDonald’s posts 53 percent jump in income; stock at highest since 2000

Dave Carpenter

CHICAGO – Strong momentum at its U.S. restaurants and improved sales in Europe helped McDonald’s Corp.’s fourth-quarter income rise 53 percent, sending the fast-food chain’s stock to a 5 1/2-year high Tuesday.Up next for U.S. customers: three new products that McDonald’s hopes will keep sales from slowing. Its spicy chicken sandwich, premium roast coffee and Asian salad all are due out by spring.The fourth-quarter numbers all were foretold by the company in guidance a week earlier, but Wall Street continued to endorse McDonald’s performance. Shares rose 14 cents to close at $35.85 on the New York Stock Exchange after reaching $36.31, their highest price since June 2, 2000, and have nearly tripled in value since pulling out of a nosedive in early 2003.”To state the obvious, McDonald’s is on a bit of a roll,” Chief Financial Officer Matthew Paull told analysts, citing the stock rise and 32 straight months of higher same-store sales.Net income for the last three months of 2005 was $608 million, or 48 cents per share, up from $398 million, or 31 cents per share, a year earlier. Revenue rose 4 percent to $5.23 billion from $5.01 billion.The Oak Brook, Ill.-based company continues to derive much of its momentum from its home market, where extended operating hours, cashless payments and new menu items have boosted sales at the nearly 14,000 U.S. restaurants.In Europe, where sales have lagged, strong results in France and Russia and improvement in Germany led to a modest 2.6 percent overall increase in same-store sales for the year.CEO Jim Skinner said the company plans to repurchase about $1 billion of its stock in the first quarter and will open 800 new McDonald’s restaurants this year as part of a $1.8 billion capital spending plan.The increased stock and sales have lent credibility to the company’s insistence it doesn’t need to spin off or sell company-owned restaurants in order to maximize its share price, as activist shareholder William Ackman of Pershing Square Capital Management LLC has publicly urged.”We believe it is critical to own and operate a certain number of restaurants,” Skinner said on a conference call. “We firmly believe that owning restaurants is paramount to being a credible franchisor.”Acknowledging, however, that franchised restaurants perform slightly better than its 8,100 company-owned restaurants, the executives said they intend to turn over more than 100 company-owned McDonald’s in the United Kingdom to franchisees starting this year. No U.S. company-owned restaurants will be affected.Paull said the company also will convert 1,500 restaurants in 15 to 20 other countries over the next three years to development licenses, effectively handing ownership to local entrepreneurs who provide the capital and the land. McDonald’s will still collect royalties, as it currently does from developmental licensees in 32 markets.Morningstar Inc. analyst Carl Sibilski said it’s misleading for Ackman to use the stock price from the boom year of 1999 as the basis of his claim McDonald’s is significantly undervalued, with many other blue-chip companies also down when measured against that point. He said there’s evidence the company can keep up its momentum, noting growth opportunities in China, the improvement in Europe and the fact the company is only about two-fifths of the way through its remodeling of U.S. restaurants.”There’s reason to be optimistic that they’re not just plateauing or peaking,” he said. “But I don’t think we’re going to see the gangbuster returns we did since 2003. That was more the rebound off of a bottom.”For the full year, the company had net income of $2.6 billion, or $2.04 per share, up 14 percent from $2.3 billion, or $1.79 per share, in 2004. Revenues increased 7 percent to $20.5 billion from $19.1 billion.Vail, Colorado


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