.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear L.C.:

Your broker was right as Sunday, and I was certifiably nuts telling you not to buy McDonald’s Corp. (MCD-$57.01) in early 2003. Way back then, an MCD man at the Oak Brook, Ill., home office told me, “We are so big that it’s impossible for us to introduce new products and better strategies and expect reasonably complete compliance.” Well this fellow certainly made a mistake in judgment, and your 25-point profit is pure proof of my goof, too.

MCD posted its second loss ever of $711 million (60 cents a share) for the June quarter vs. a profit for the like quarter a year ago of $834 million, or 67 cents a share. This recent loss has nothing to do with operating efficiencies, revenues or corporate irregularities. MCD’s only other loss was caused by a slump in revenues in the latter half of 2002, and I believed that slump was a sign to dump the stock.

The reason for this quarter’s loss was management’s sound decision to exit its business in the Caribbean and Latin America. Few of those 1,609 units were profitable. They were a cash drain, a time drain and a management drain, and the unique characteristics of those markets’ demographics made those units nearly impossible to manage effectively. Removing those 1,609 units from its corporate portfolio was a good move. Though the consequences resulted in a one-time charge of $1.31 a share, this significantly reduces the company’s exposure to an inhospitable business climate. MCD will receive $700 million in cash for ceding control, which it will use to repurchase company stock.

Excluding that one-time charge, MCD’s second-quarter revenues grew to $870 million and net profits increased to 71 cents a share from 67 cents. Management seems to be doing a yeoman’s job. Global sales grew by 5 percent, aided by a delivery service in 40 foreign cities where traffic patterns are in constant gridlock. McDonald’s even delivers in Manhattan, so customers living in nearby high-rises and office buildings can phone in their orders. Of course, there’s a 50 cent to $1 courier fee that covers the costs of handling phoned-in orders, drivers and motorbikes.

In the last few years, management has been doing an excellent job of running the company, and in the next few years, I believe the stock price may better reflect management’s successes. Since 2002, net profit margins have increased from 11 percent to 14.3 percent, shareholders’ equity and return on capital grew by 60 percent, the dividend improved more than sixfold to $1.50. Meanwhile, growth in Japan and China should continue its impressive surge, growing by almost 10 percent.

The company expects to strengthen its leadership in the fast-food market, and its efforts to revitalize the MCD brand are working well in the United States and generating strong numbers in Europe and Asia. Management decided in 2003 to concentrate on increasing revenues from existing units rather than focus on building new units to capture new revenues. And it has been working. Management has introduced new menu items such as premium coffee, salads, chicken, Mexican wraps, smoothies, iced coffee, “cinnamelts” and other food items to match local demand.

McDonald’s is almost more American than apple pie, Cracker Jack and nighttime baseball. The company employs more people (486,000) than Campbell Soup, General Mills, Heinz, Dow Chemical, DuPont, Hershey, General Dynamics and Lockheed-Martin combined … and easily more than General Motors, Ford, Honda and Toyota. The long term looks attractive for MCD, with revenues, earnings per share and dividends expected to come in at $27 billion, $3.70 and $1.75 respectively by 2011. I like this company, and I believe management is doing an exceptional job.

But I can’t find a compelling reason to buy more shares of MCD, because I believe the stock is fairly priced for the next few years. I told you this more than four years and 25 points ago, but I was as wrong as Corrigan. However, I believe my advice is closer to the button this time than it was in 2003.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service