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Morningstar analyst RJ Hottovy gives his outlook for the fast-food market amid rising commodity prices.
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Grilled in the second quarter the home of the big Mac reporting a rare downturn in profits net income.
With one dollar and 32 cents a share was down at Dallas city time a year ago the stronger dollar -- -- the fast food giant's bottom line.
-- will continue here to weigh in as RJ hot -- -- analyst at Morningstar.
RJ thanks for joining us.
Thanks Melissa said the strength in the dollar playing a big role here right.
Yeah absolutely I think what we solves a lot of you know macro and foreign currency pressures in the quarter.
-- as you pointed out it's not a rare to see McDonald's have a mess on the earnings line like this them.
You know why I think we're gonna see continuation -- macro pressures last couple quarters I do think longer term.
To pick up -- -- class company like this is you know that there could be an opportunity.
Do you really because they eat some warning going forward I mean if you listen -- CFO on the conference call.
He was saying that he thinks that it's going to be very hard to raise prices here in the US and especially in Europe.
Because of everything that's going on with consumer confidence in the economy at the same time.
They're seeing a lot of pressure in rising commodity prices so their margins could be pressured does that make you nervous.
-- it does and I think that's those are all fair points I do think that again we we potentially have a couple quarters.
About decelerating -- sales growth and potentially margin contraction.
But again -- look at company better positioned than a lot of their peers.
These are all precious and -- -- all restaurant companies and given that McDonald's.
Have some of the best relationships with the suppliers I think that they're gonna be able to navigate this -- potential food inflation that may be coming in 2013 and beyond.
Better than its peers and preserve margins better than better than the the rest of the group.
You know again it's gonna take some patient and you have to have some summit for some volatility this man but I do you think of a longer term story still -- -- there.
So this stock is trading down about two point 6% a little more than not so far today would you dip in here would you rate -- to go little -- it sounds like.
There might be time you've -- beyond this to get it.
Yeah I think that you probably can get in now I think the stock -- -- oversold.
If you wanna start reduce your costs -- in this point -- is actually trading at a modest discount to the group at this point the average PE multiple on a four basis about.
Fifty and a half times the stock is right around fifteen.
On eating ebitda multiples actually only about nine times compared the group at about nine and a half.
I think markets have a certain -- -- an elevated activity yet for acknowledging that there could be a couple more quarters of pressure Matalin a top -- as well as the market line.
What your take away from this caller from this earnings report to the rest of the sect Dirk as you said you -- it's -- like commodity prices are going up you think these guys -- to be able to handle it better than the others but what we're just some of the clues that McDonald's gave you about the rest of the group.
You know I think just -- -- and we we -- -- a handful of other restaurants -- support in those being Darden mentioned Paulette.
But it seems to be that you know traffic is under pressure just across the board.
Problem yet again that the company is that I think have a a -- -- value message of the companies that are sold in positive traffic.
I think those other companies that are gaining share because we are a situation where the broader restaurant industry the informal eating out market is in decline.
The companies that are so close -- positive traffic numbers are the -- always you know maintained that traffic.
And as we stiff that you see things grassroots how would you put accurate.
I would put let me so let McDonald's I would probably put Starbucks not driven -- -- -- is.
You know the expectations are a little bit out of line with what the reality was that mean they are still maintaining -- in insurance market.
As we sort of see things come back and the broader economy.
I think there will be an opportunity for those restaurant companies that are keeping the traffic -- at their stores.
To gradually gravitate -- up to higher as points or maybe improve the attach rate averages in those other higher margin products but again it is gonna take some -- to play out I think this is.
If anything remark from earnings -- -- -- restaurants it's not a great kind of DR restaurant business right now.
Gasoline airport -- spot plays great because they said that you know they're growing traffic but it was at a slower rate than everyone -- they're still growing so good point RJ thanks for coming on.
Thank you so coming up tonight on my.
