Takeaways from McDonald's (MCD) Investor Day

McDonald's (MCD) had Investor Day in Chicago yesterday, and treated the analysts to breakfast AND lunch, and a pretty well developed presentation of US, Europe, APNEA, corporate and marketing actions underway. We monitored the discussion, and relate the following interesting points that might get lost otherwise:

• While they didn't want to get trapped into a number going forward, MCD had helped fund franchisees strategic leasehold improvement CAPEX--the McCafe expansion-- and might do so again for future initiatives. McDonald's owns a significant amount of the buildings and real estate, and credit is tight, even for McDonald's franchisees.

• Most every financial metric displayed--restaurant margin, franchising margin, ROIC and ROIIC--were up versus 2004 in every Division.

• The average US McDonald's franchisee unit had operational cash flow of $314K/unit last year (likely pre-debt service), and average equity of $4.7M per owner/operator. WOW !

• The MCD marketing machine is well developed,with national and local-co-ops all plugging away on multiple, supportive and complimentary brand and product themes, and a great R&D pipeline. One result is that McDonald's value menu mix percentage was only 10-11% (13-14% if you count the doublecheeseburger). Ergo, MCD doesn't run the same risk that Burger King (BKC) does by rolling the dice and putting its more limited TV behind a low end item,like the $.99 doublecheeseburger.

• MCD's early research estimated that of McCafe sales, 44% was incremental and 56% was tradeup. Either way, they win, if those numbers hold. That is one of the highest incremental gains seen in a long time.

• MCD's European average annual unit sales (AUVs) are great--$3.4M US average in Europe, $2.4M in the US and $1.8M in Asia/Pacific/Middle East/Africa. Russia was at $5.5M...wow ! No wonder the MCD company ownership ratio was highest in Russia (as it should be, because the ROI works). MCD does not refranchise to chase percentage margins--like some did (SONC)-- but does so on a disciplined basis.

• MCD's current media spending mix included 72% broadcast (down), and 12% digital (up). It is increasing its value oriented messaging next year.

MCD will be pressed to keep US same store sales positive--October was down .1%, and it's an emotionally sensitive metric. But these results overall show alot of size, scale and focus advantages.

Disclosure: No stock positions.

Comments

[StockMaster...:]

I doubt we are going to see mid 50's on MCD again, too bad I only bought about 1/2 of the MCD I wanted for my portfolio in the low 50's starting at 48. If we do, buy buy buy. This restaurant chain is a play on food inflation, they manage costs of food better than anyone else. Those figures on the average operator says it all, amazing company. I hear you basically can't even buy a MCD now unless you already own one. This insures no one messes up their brand and only give franchises out to successful operators and not people that think they can put their own spin on MCD.

Recent run is parabolic for MCD, I'd wait for a pullback to 60 if you need in.

Nov 13 06:17 PM

[UValue:]

Agree 100%..prob the best managed company in the QSR industry. They are basically mastering the franschise model and driving higher and higher ROIC through refranchising, operating improvement, remodeling and menu innovation. If you look 5y back on sss, the company is taking a significant market share from its competitors...however, its very hard to justify a target price above $75. Would also buy it at the low 50s but don't believe it's going to get there... don't forget the $1.5-$1.8 in dividends the company is paying.

Nov 13 09:28 PM

[SP9999:]

There are other places to use the $'s I have from profit taking this week for a quick turnaround and higher dividend. I'm doing fine and think this is not for me, a short time trader.

Nov 14 05:53 PM