McDonald's, Tyson and YRC Worldwide Give Gloomy Economic Signals

I always prefer to hear what companies themselves are saying as opposed to listening to misguided, inaccurate, and backward looking government reports. I mentioned yesterday [Earnings Preview Monday-Tuesday] would be an interesting day. The early results are not very encouraging. Let's take a look

First, I defended McDonald's (MCD) when it was downgraded a few weeks ago, on the US consumer slowdown theory [No Safety, Even in McDonald's] - and while it is too early to make a trend, it appears December showed flat same store sales in the US. Again it's one month, and a month that could have been impacted by weather and people scrimping for Christmas, but this is something to keep an eye on.

If Jan-Feb see similar trends, then (a) I was wrong to say if nothing else, people will be fleeing to McDonald's as they get "poorer" and (b) the economy is even worse off than I imagined if people cannot even afford McDonald's. Again, you can't make anything out of a one month trend, but we definitely don't want to see similar results in the coming few months.

McDonald's Corp (NYSE:MCD< - News), the world's largest restaurant chain operator, on Monday posted flat U.S. same-store sales in December, sending its shares down 8 percent and weighing on the entire restaurant sector McDonald's cited softer consumer spending and severe winter weather for the flat U.S. December sales at restaurants open at least 13 months. That result, the weakest monthly U.S. sales number since the company posted a decline in March 2003, spooked investors -- who worried that consumers had begun cutting back on spending at inexpensive and traditionally recession-resistant fast food chains.

Next, YRC Worldwide (YRCW) is one of the major trucking companies in the US - and a leading indicator on the economy (it's been in free fall for three quarters) looks like it posted (net of all the charges) a barely profitable quarter despite analysts looking for $0.54.
Oops.

The economic environment was challenging throughout 2007 and it was increasingly so in the fourth quarter," said President and Chief Executive Bill Zollars in a statement. "Looking forward, we expect the first quarter to also be difficult given it is seasonally the softest and we don't anticipate the economy improving in the near term."

Last, on the inflation front Tyson Foods (TSN) a stock I flagged way back at the beginning of the blog as a potential China pork play [Is Pork the Next Chinese Boom Play?] is announcing price hikes to compensate for the large costs of feeding their livestock. Costs are up for 2008 $200M over where they expected it way back in.... November 2007. That's a factor of a miss of estimate by magnitude >60% in just three months. Just shows you how bad inflation is getting (errr if you don't listen to government reports that is). World of Shortages. They also withdrew 2008 guidance - never a good thing.

The company expects to face more than $500 million in additional grain costs for fiscal 2008, which CEO and President Dick Bond said is well above the $300 million increase it had expected in November."Because of these unanticipated and extraordinarily high corn and soybean meal costs, we have no choice but to raise prices substantially," Bond said."For the foreseeable future, consumers will pay more and more for food, especially protein, because grain represents a proportionally higher percentage of input costs compared to other foods," he said.

"It just seems it's not a prudent use of corn as it has affected food and food inflation," Bond said, calling for the government to lift its mandates on ethanol production.

Keep in mind, Tyson already substantially raised prices this year [Nov 12 - Tyson Foods Continues to Point to Food Inflation], so this is the next iteration and it's going to be "substantial". Note his last comment, which is something anyone with half a brain can see. Unfortunately, voter pandering won't allow this to happen... so the other 95% of us will continue to suffer so the farmers votes can be "secured". On the plus side, that next round of exports to China (pork) might (eventually) come to fruition (but with costs so high this just seems like an un-investable sector)

We are as well talking to COFCO and to the opportunities to export to China. It is a tremendous opportunity," said CEO Richard Bond. "I do believe that there was a significant loss to their number of hogs that were available in China."

So folks, these are not good signs. That said, if we use August 2007-December 2007 thinking this is GREAT news because it means the Fed can cut rates! Yahoo!

Disclosure; No positions except general apathy & disgust to those who keep passing more awful iterations of the ethanol boondoggle bills - costings millions upon millions to the other 95% of Americans not benefiting from said boondoggle

Comments

[User 159046]

Ok, how much research do you do? McDonalds stock is up from this time last year. it also shows the same trends every year. people buy a lot at Christmas and pay their bills offfor the next few months, not a surpprise.

Also in regards to Tyson's price hike. Did it ever occur to you that corn prices are being raised by not only the increasing demand in China, but by the outcry for alternative fuel sources made from corn?

People have lived outside their means for too long. Buying homes, cars, and luxury goods all on credit. mosy of which they never could afford in the first place. Coupled with the fact that they were going to pay thousands more in interest, it just naturally caught up with them. Throwing caution to the wind they dont realize that the payments will eventually get so large they cannot possibly pay them all. Even the ones who arent in danger of loosing some of their financed items, are feeling the crunch by not being able to make any more large purchases until they can get their debt under control. Even this isnt completly true, take a look at tech stocks liek apple and best buy. Both of those stocks have stayed noticably higher than they where in years past.