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McDonald's No Longer Overcooked

Tickers in this article: MCD WEN
NEW YORK ( TheStreet) -- Fast food giant McDonald's (MCD) is without a doubt the gold standard among its peers, a group which includes names such as Burger King and Wendy's (WEN) . For that matter, there are very few companies performing as well as McDonald's in any category -- including growing average annual sales by 6% while more than doubling its operating margins.

However, for as dominant as the company has been over the past decade, it rarely ever gets mentioned among the best-run operations on the market. But on the heels of a somewhat disappointing quarter, opportunistic investors may find long-term value as a result of a market's overreaction to the company's short-term hiccup.

Q3 Wasn't Juicy, but Still Edible

McDonald's reported third quarter net income of $1.46 billion, or $1.43 per share and missing analysts' estimates of $1.47 per share. The decline in net income by 3% year over year was particularly disappointing since it followed the second quarter, during which profits also fell off by 4.5%. On the other hand, revenue was impressive.

Although revenue dipped 0.2% year over year, the company managed to exceed estimates with sales reaching $7.15 billion vs. analysts' estimates of $6.94 billion. Consequently, sales totals were not enough to prolong the company's streak of four consecutive quarters of revenue growth.

Operating income was a little soft -- showing a 4% decline to $2.29 billion. Likewise, due to increased competition, operating margins registered at 32% -- shedding by 140 basis points. But impressively, same-store sales (comps) were not too adversely impacted.

U.S. restaurants produced comps growth of 1.2%. Similarly, comps in Europe also performed well. Despite the ongoing fiscal concerns abroad, the company enjoyed same-store-sales growth of 1.8%. This means that McDonald's has found ways to grow market share in the region despite stiff competition; 1.4% comp growth in the Asia/Pacific and Africa division was equally impressive.

Moving Forward

Overall, this was not a quarter of gourmet status, but the company didn't exactly burn the happy meal either. Operating income and margins were a little disappointing. Likewise, revenue fell 0.4% and 0.1% from company owned and franchise owned restaurants respectively, speaking to not only the effect of the global economic slowdown, but also the impact of competitive pressure -- all of which resulted in a 4% decline in total operating income.

In terms of outlook, it doesn't seem as if analysts are expecting much improvement as Q4 estimates have fallen from $1.59 per share to $1.54. Likewise full-year projections have moved down to $5.55 from $5.71 over the past three months. But statements by the company seem to support the less than rosy view. During the announcement, Don Thompson, the company's CEO offered the following:

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