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Non-Tech : McDonalds (MCD) -- Ignore unavailable to you. Want to Upgrade?

To: John O'Neill who wrote (156)	8/10/1998 4:28:00 PM
From: Kathleen capps	Read Replies (1) \| Respond to of 288

From Today's Fool: (for personal use only) An Investment Opinion by Dale Wettlaufer FOOL PLATE SPECIAL: McDonald's Pleases Franchisees ~~~~~~~~~~~~~~~~~~~~~~~ Quick-serve restaurant king McDonald's (NYSE: MCD) served up some fun for its shareholders this morning, climbing $2 1/4 to $63 3/8 after the company said that it's "on track to meet our stated objective of increasing earnings per share 10 to 15 percent in each of the next five years, excluding the effect of foreign currency translation." Assuming neutral currency effects in the coming year, that means the mean analyst estimate of $2.51 per share for 1998 looks highly probable of being hit and 1999's mean estimate of $2.83 per share also looks to be within a reasonable range. Given that incremental information is what gets priced by the market on a daily basis, a penny per share here and a penny there not only changes the amount of cash flows the market attempts to discount, but it may also change assumptions on the time period over which the company can generate returns on invested capital above its cost of capital. The longer a company can do that and sustain what is called a "competitive advantage period," the more the company is intrinsically worth. There are a couple of things brewing under the surface at McDonald's that should change the company's financial performance for the better. Investors should know first off that McDonald's is a large owner of real estate, having acquired that real estate in the go-go growth years of franchise founder Ray Kroc in the 1960s and '70s. The company now plans to focus more on getting its franchisees into the position of owning the land on which their units sit, which unlocks parent corporation assets that were fixed. One reason why the company's return on equity and margins are so high is because a big chunk of its real estate is reflected at decades-old cost on the balance sheet, reflecting historical cost and not the current value of that equity. Unlocking those assets will in turn feed the company's goal of nearly doubling its international restaurants within the next five years. The outlook for McDonald's is much better these days after suffering for a number of years. With the highly profitable McFlurry generating excellent marginal returns and the new MBX meeting the challenge posed by the reinvigorated Burger King, McDonald's menu is once again attractive and uncomplicated. Add to this the company's move to allocating 50% of media spending in local markets, up from 25% last year, and the company is doing what it takes to keep its local franchisees happy. In the end, that's something that Ray Kroc understood. From the locally born innovations of the Big Mac and the whole concept of breakfast at McDonald's, the company's franchisees have always been a source of strength. Traditionally, franchisees have always had a say in how media spending is done, but the increase in the split between national and local advertising is a reaffirmation of the company's dedication to its local operator. One would be hard-pressed not to connect this renewed dedication with McDonald's financial performance and the performance of its stock of late.