Golden Arches Have The Golden Touch

McDonald's Corporation

shares are up more than 2% this morning after the company reported much better than expected earnings this morning, led by gains surprisingly in France, as well as Asia. The company reported second quarter earnings of $1.35 per share on $6.91 billion in revenues. Wall Street analysts were expecting earnings of $1.28 per share on $6.63 billion in revenues. The company had June same-store-sales in the U.S. of 6.9%, and incredibly strong in Europe, up 9.1%. McDonald's said it expects July global same-store-sales between 4 and 5%. The company had an "effective income tax rate for the quarter of 31.8% in 2011 compared with 29.4% in 2010. Margins fell to 20.7% from 22.2%, as inflation in food costs ate a little bit at earnings during the quarter. The company bought back 9.2 million shares during the quarter, bringing the total buyback during 2011 to 27.6 million shares or $2.1 billion. "McDonald's ongoing momentum reflects our commitment to the customer. By providing relevant food and beverage choices in convenient, modern restaurants, we're giving customers more reasons to visit us more often," said McDonald's Chief Executive Officer Jim Skinner. "McDonald's global results for the quarter demonstrate the resilience of our Plan to Win and our ability to execute successfully. Comparable sales and guest count increases across all segments, highlighted by June's strong results, drove double-digit operating income and earnings per share growth." The company was helped by a weaker U.S. dollar, as a stronger Euro and Australian dollar when repatriated back helped boost earnings. McDonald's has become a global powerhouse, and as worries of the economy continue to persist, consumers are looking for value like never before, and McDonald's continues to be a beneficiary of that trade-down trend. It is stealing market share by launching new products like strawberry lemonade, and other products that driving traffic to its drive-thrus and restaurants. Jim Skinner and management have done a remarkable job of turning the company around from a burger chain to something that offers healthy options and sees consistently strong traffic. Shares trade at just over 15 times forward earnings, not cheap, but the company continues to grow consistently and investors are lovin' that 2.8% dividend yield as well. As the commercial goes, "You'll always have a friend wearin' big red shoes." I believe the commercial really meant it for your portfolio.

Traders who believe that the economy will continue to slodge around and McDonald's will benefit might want to consider the following trades:

Traders who believe that the economy is going to recover and consumers are likely to trade up from McDonald's may consider alternate positions: