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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (42058)	12/31/2004 3:00:43 AM
From: Johnny Canuck	Respond to of 68501

Fast food stocks with global ambitions PAT MCKEOUGH As opportunities for growth in North America slow, fast food giants like McDonald's, Wendy's and Pizza Hut are looking to Europe and Asia for new customers. McDonald's Corp (NYSE: MCD) relies on its international restaurants for 60 per cent of its revenue and profits. Although sales in Europe are still sluggish due to lingering fears over mad cow disease, same-store sales at McDonald's overseas outlets grew by 5.8 per cent in the third quarter of 2004. However, the United States is driving most of McDonald's recent growth. It made $0.61 a share (total $778.4 million) in the latest quarter, up 41.9 per cent from $0.43 a share ($547.4 million) a year earlier, mostly due to an 8.5 per cent jump in U.S. same-store sales. Even if you disregard a $0.07 a share tax benefit, earnings still rose 26 per cent. Total sales grew 9 per cent, to $4.9 billion. In the last two years, the company has successfully launched several new menu items, including healthier foods like salads. A new focus on cleanliness has also helped lure customers, along with later hours and credit/ debit card payment options. McDonald's has also improved its balance sheet. In the first nine months of 2004, it cut its long-term debt by $649.8 million, to $8.7 billion or 0.7 times equity. The company aims to retire a further $250 million by the end of the year. The stock got as high as $50 in 1999, but dropped to $12 in 2003. It now trades at 15.3 times the $1.89 a share that it will probably make this year. The $0.55 dividend yields 1.9 per cent. McDonald's is a buy. Yum! Brands (NYSE: YUM) is the second largest operator of fast food restaurants outside of the United States after McDonald's. These overseas outlets now account for about 40 per cent of Yum's sales and profits. Thanks to strong growth in China and the UK, profits at Yum's international division rose 25 per cent in the third quarter ended September 4, 2004. That helped lift the company's total profits to $0.61 a share (total $185 million). Sales climbed 10 per cent, to $2.2 billion. The improved results also reflect strong sales at the company's domestic Taco Bell and Pizza Hut chains, largely due to more multi-brand outlets that combine two or more of Yum's restaurants in a single facility. These locations attract more customers than standalone sites, and cost less to operate per square foot. So far in 2004, Yum has added 275 new international outlets. It now operates roughly 12,500 international outlets (or 40 per cent of its total 30,950 outlets). It aims to open 1,000 more international locations by the end of 2005. The company used its strong cash flow to cut its long-term debt, from 1.8 times equity at the end of 2003 to 1.1 times. It has also spent $294 million on stock repurchases since the start of the year, and started paying a regular dividend. The current annual rate of $0.40 yields 0.9 per cent. Yum! Brands is a buy. Wendy's International (NYSE: WEN) has moved down lately as hurricanes in the southeastern United States have hurt its profit growth. We feel investors over-reacted to a temporary situation. It seems they have also overlooked the growing importance of the Tim Hortons donut chain. Tim Hortons now supplies 27 per cent of Wendy's total revenues, and nearly half of its profits. Thanks to strong sales at Tim Hortons, Wendy's total sales in the third quarter of 2004 grew 14.2 per cent, to $741.1 million from $648.9 million a year earlier. However, profits rose just 3.4 per cent, to $0.60 a share from $0.58, due to rising beef costs. The stock has gained 30 per cent for us in the last year, and now trades at 18.3 times the $2.35 a share that it should make in 2004. It also trades for 1.4 times its sales of $30.31 a share. The stock now trades at 14.8 times the $2.23 a share it should make this year. The $0.48 dividend yields 1.5 per cent. Wendy's is a buy. Pepsico Inc. $50 (NYSE: PEP); WSSF Rating: Above average) now gets about a third of its revenue, and a quarter of its income, from its international operations. Thanks to strong demand for both soft drinks and snack foods, profits at PepsiCo's overseas business rose 29 per cent in the third quarter ended September 4, 2004. That helped raise its total earnings 13.8 per cent, to $0.66 a share (total $1.1 billion) from $0.58 a share ($1.0 billion) a year earlier. The latest earnings figure excludes a one-time tax benefit of $0.13 a share. Revenue grew 7.4 per cent, to $7.3 billion from $6.8 billion. PepsiCo owns some of the world's best-known brands, including Frito-Lay, Quaker Oats, Gatorade and Tropicana. Growing prosperity overseas should continue to spur demand for these products. The strong results have also fueled PepsiCo's aggressive stock buyback plan. So far in 2004, it has repurchased about 3 per cent of its stock for $2.5 billion. PepsiCo should earn $2.31 a share in 2004, and the stock trades at 21.7 times that figure. We feel that's high in relation to its growth prospects, particularly since rising fuel and raw material costs will probably slow down its earnings growth. It also trades at a high 3.0 times its revenue of $16.94 a share. The $0.92 dividend yields 1.8 per cent. PepsiCo is a hold. -------------------------------------------------------------------------------- Portfolio manager Patrick McKeough publishes The Successful Investor newsletter and is author of Riding the Bull: How You Can Profit in the 1990s Stock Market Boom. He or his clients may hold positions in stocks mentioned. His column appears Mondays. thestar.com