McDonald's gains surprise analysts

Back-to-basics approach thought to give customers more reasons to visit often

January 18, 2007|By John Schmeltzer | John Schmeltzer,Chicago Tribune

Shares of McDonald's Corp. hit a 52-week high yesterday after the company posted stronger-than-expected December sales that will enable it to post fourth-quarter profits significantly higher than Wall Street analysts had estimated.

John Owens, an analyst for Chicago-based Morningstar Inc., said the performance of Oak Brook, Ill.-based McDonald's reflects its continuing back-to-basics focus.

"I think that McDonald's is doing really well executing their strategy of giving customers more reasons to visit more often," he said.

"They have an improved breakfast lineup including premium coffee. They have a [chicken] snack wrap that people can order in between meals or as a meal and they have the premium chicken options. If you had a burger yesterday, you can come in today and have a premium chicken sandwich," Owens said.

Such changes helped the world's largest restaurant company report that U.S. sales for December rose 6.9 percent compared with 4.4 percent a year ago. Sales in Europe, the company's second-largest market, rose 8.2 percent for the month compared with 4.6 percent a year ago. It was the 11th continuous improved month in that market.

For the year, the company reported sales rose 6.3 percent worldwide, compared with 4.2 percent a year ago.

The company is reportedly working on new breakfast offerings, in addition to a $1 breakfast menu, a new beverage lineup, and a new frying oil.

Shares of McDonald's traded as high as $45.06, a seven-year high, before closing at $44.86, up 29 cents on the New York Stock Exchange.

Wachovia analyst Jeff Omohundro said the company's 2006 sales results were impressive since they beat solid 2005 results.

"McDonald's continued success can be attributed in part to product innovation, particularly with regard to premium chicken offerings and the popular breakfast day part, as well as enhanced service through initiatives such as extended hours and store remodels," he wrote in a note to investors.

Janna Sampson, co-manager of the AmSouth Select Equity Fund and director of portfolio management at Oakbrook Investments in Lisle, Ill., which holds more than 600,000 McDonald's shares, said the company has transformed itself beyond just selling burgers. "It is a full-serve, quick-serve restaurant," Sampson said. "They are selling as much chicken in dollar terms as they are in beef," she said.

John Schmeltzer writes for the Chicago Tribune.

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