McDonald's (MCD): Alms For The Poor

If the result from McDonald’s (MCD) say anything it is that the low end of the consumer market in the US has not died off.

For the second quarter, MCD revenue moved up 4% to $6.1 billion.Earnings per share from continuing operations of $1.04, up 44%. Shares rallied on the news.

For McDonald’s U.S., comparable sales were up 3.4% and operating income increased 6% for the quarter. That increase was bested in Europe were store sales were up 7.4% and Asia, where they rose 8.8%.

The figures for the US stand out above the rest because they could have easily been down. Some analysts worried that the recession had cut discretionary spending among the lower and middle classes so much that going out for even a modest meal would be difficult. Gas and food prices would be up so much that there was little left for anything else.

McDonald’s did help its situation by absorbing much of the higher costs of the commodities it uses to make its products. It is a smart move. The company has the balance sheet to take slightly lower margins in the name of customer loyalty.

The consumer with modest means may be hurting, but he is not dead yet.

Douglas A. McIntyre