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Tickers in this Article: MCD, BKC, WEN, YUM
McDonald's (NYSE:MCD) has been a safe haven in this market. Despite the general decline we've seen in equity prices, shares of the fast food giant are trading near their 52-week high. The question is, can this dominance continue in the face of a second quarter that delivered mixed messages to the investing community.

Q2 Wrap
Let's get the good news out of the way first before we delve into the company's gloomy predictions for the future. In the second quarter ended June 30, McDonald's earned $1.19 billion, or $1.04 per share. That's a vast improvement over the $711.7 million, or 60-cent-per-share loss, it posted in the comparable quarter last year. Of course excluding a gain related to the sale of an interest it had in Pret A Manger, a small food chain, its profit totaled 94 cents per share, but that was still 8 cents north of analyst expectations. (For more on analyst expectations, read Analyst Recommendations: Do Sell Ratings Exist?)

Meanwhile, McDonald's revenue number came in at about $6.07 billion which was north of the roughly $5.94 billion the Street had been expecting. And finally, and perhaps most importantly its same-store-sales were up a super impressive 6.1%.

This estimate beating clean-sweep should attract attention, which in turn could drive the share price higher. I am particularly impressed with the company's same-store-sales performance when compared to some of its brethren.

In its second quarter Yum Brands (NYSE:YUM), known for its Pizza Hut, Taco Bell and KFC brands posted a worldwide same-store improvement of 4%. Wendy's (NYSE:WEN) reported a Q2 U.S. company operated same-store rise of 0.1%. Also, its same-store numbers at U.S. franchises rose 1.1% in the period. These numbers help justify McDonald's share price.

Rising Supply Costs Create Uncertain Future
McDonald's expects beef and chicken costs to rise substantially in the U.S. and Europe for the remainder of the year. Apparently it has begun testing several options that may change the makeup of its dollar menu.

This is worrisome. Beef and chicken are pretty important to McDonald's. If the company and franchisees can't raise prices to compensate for increases this will pinch margins.

With costs going up, changing the dollar menu sounds like a good idea, but I would argue that the dollar menu has been a big reason why many people have been venturing through its doors. Tinkering with it could hurt foot traffic. Who is to say that Wendy's or Burger King (NYSE:BKC) won't simultaneously launch an offering to capture some of those cost conscious consumers? I see some risk here.

Bottom Line
McDonald's has been on a roll, but I'm concerned that higher commodity costs will hurt the company going forward. If I were long the stock, I don't think I'd sell out entirely at this point, but I'd consider booking some profits.

Learn to put your money where you mouth is, in our related article Sinking Your Teeth Into Restaurant Stocks.

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