Fast Money

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Fast Money

No. 3 - Inside The Golden Arches

Despite rising beef prices and increased consumer health concerns, fast food has generated a lot of fast money this year. For example, Burger King (BKC) and Yum! Brands (YUM) are both surging close to 15% year to date. It's a story we've covered on Fast Money before,but now CNBC's Carl Quintanilla goes behind the golden arches for an inside look at the granddaddy of them all: McDonalds (MCD).

Following is an excerpt from Quintanilla’s report.

Inside the McDonald's Empire

Financially, McDonald's is soaring with annual revenues of more than $21 billion dollars. That's a major turnaround from where the company was just a few years ago. 

In 2002, after years of unchecked growth and a lack of attention to basics, McDonald's announced its first ever quarterly loss.

"We like to say, we took our eyes off our fries," explains McDonald’s Chief Executive Jim Skinner.

“In 2002 same store sales were sliding?” asks Quintanilla.

“Right,” replies Skinner.

“Margins were sliding?” Quintanilla adds.

“Right,” Skinner’s responds.

“First quarterly loss ever,” Quintanilla says.

“Right,” says Skinner.

“What went wrong in that, in that period?” asks Quintanilla.

“Well, first of all, I call 2002, the year of the perfect storm where all the things and the strategies that we were pursuing, the growth strategy, we basically hit the wall in 2002," answers Skinner.

A growth strategy that included opening more than 2,000 new restaurants a year. It was unsustainable even for the golden arches.

"We invested $4 billion dollars in new store growth over the previous 3 or 4 years, no incremental income growth. You know, that's a formula for, you know, failure,” says Skinner.

"Bankruptcy?" asks Quintanilla.

“Right, right, right.” replies Skinner


Jeff Macke says consistency is the big issue for McDonald's because some restaurants are company owned while others are franchises. Jeff feels MCD is a buy until he sees inconsistency in their stores.

Eric Bolling says the charts suggest to him if McDonald’s stock dips lower than $50 get out – and if it goes above $53 own the stock.

Pete Najarian jokes that if McDonald’s does well, investors should buy Bristol-Myers (BMY) for their diabetes drug pipeline.

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Trader disclosure: On July 25th 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (ATVI), (JWN) Bolling Owns (BP), (XOM).