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McDonald's Corp. (MCD Free McDonald’s Stock Report), one of the world's largest restaurant chains and a Dow-30 component, has reported disappointing third-quarter results, sending its shares lower. Revenues came in at $7.15 billion, relatively flat compared with the year-earlier figure of $7.17 billion and just shy of our $7.20 billion estimate. At the same time, share net slipped nominally year over year, from $1.45 to $1.43. (Our forecast called for $1.50 a share.) Global comparable-store sales, while still positive (up 1.9% in the period), were much weaker than in the June interim. McDonald's operating environment remains challenging, given the uncertain economic backdrop, which is taking a toll on diners' interest in eating out in a number of markets. Too, unfavorable foreign currency movements continue to hamper the company's results. In fact, on a constant-currency basis, McDonald's top line actually advanced 4% in the September quarter, while foreign exchange effects shaved $0.08 a share off of earnings.

Geographically, Europe continued to lead the way in terms of comparable-store sales, which rose 1.8% in the region. The company benefited from solid market-share gains across the Continent, with Russia, the United Kingdom, and France turning in the strongest performances. The region comprised of Asia/Pacific, the Middle East, and Africa followed, with comps up 1.4%, helped by limited-time offers featured alongside classic options and value platforms. Meanwhile, domestic comparable-store sales lagged behind other regions, rising just 1.2%, amid increased competitive activity. Operating income in the United States slipped 1% in the quarter.

Going forward, we anticipate further top- and bottom-line pressures near term, due to continued foreign currency effects and the still-sluggish global economy. In fact, management stated that worldwide comparable-store sales are currently trending negative, which we anticipate may lead to another comparatively disappointing performance in the fourth quarter. 

Nevertheless, the long-term outlook remains bright for McDonald's. The company has a strong global footprint and considerable brand loyalty among consumers, which should drive results as the macroeconomic outlook improves. Indeed, we view the recent headwinds as largely a near-term issue associated with a difficult operating environment. We continue to recommend MCD stock for patient, conservative investors, given its top marks for Safety (1) and Price Stability (100). Too, the company recently raised its quarterly dividend 10%, to $0.77 a share, bringing the annualized payout to $3.08 a share, which further adds to the equity's total return appeal.

About The Company:McDonald's is a quick-service restaurant with more than 33,500 locations in 119 countries (as of December 31, 2011). The majority of the restaurants (over 80%) are operated by franchisees or affiliates. The company is best known for its hamburgers and French fries, but it now has a diverse menu that includes breakfast items and an array of coffee-based drinks.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.