Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jeremy Glaser | 04-21-2010 04:56 PM

McDonald's Keeps Rolling, Starbucks Back in the Game

McDonald's and Starbucks keep encroaching on each other's turf, but Morningstar analyst R.J. Hottovy says earnings show both are capitalizing on the recovery.

Jeremy Glaser: For Morningstar.com, I'm Jeremy Glaser. Both Starbucks and McDonald's posted outstanding quarters today. I'm here with analyst R.J. Hottovy to discuss what is driving the results and what the future could hold. R.J., thanks for talking with me today.

R.J. Hottovy: Thanks for having me, Jeremy.

Glaser: So, starting with McDonald's, which reported this morning. They had another great quarter. What was driving their growth?

Hottovy: It was a number of factors, and really I think that the key takeaways here are two-fold. First, that March sales in the U.S. took off. We had seen flattish sales in January and February, and saw a nice rebound in March.

To me, that shows that a lot of things they have done on the menu are gaining traction. Whether or not that's the introduction of frappes and the soon-to-be-launched smoothie products, some of the more premium products such as Angus burgers, and some of the simpler things they've done in terms of snack and portable products, in terms of the Big Mac wrap--all these things are having a meaningful impact on driving traffic.

Another thing that they have done very well, is the introduction of the everyday breakfast value menu, which certainly played a role in driving traffic. We've seen a little bit of sacrifice at the average ticket level, but certainly this has been a key driver of sales. I think that that's going to help drive operating margins going forward.

The second factor really is just the operating margin line. To continue to put up 200 basis points of operating margin improvement really was the key highlight for us. A lot of that has to do with favorable commodity costs. That will lap in the back half of the year--we won't see that favorability.

I expect the company to post still some pretty impressive margin gains for the year, just based on basic blocking and tackling at the G&A level. I think the company is well-positioned for the rest of this year.

Read Full Transcript
{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: