McDrop-Off

If McDonald's (MCD) recent string of strong profit reports came thanks largely to the recession (people seeking the chain's cheap eats), does that mean that its latest report, wherein McDonald's profits fell by 8 percent, shows that the recession is ending?

It doesn't. Or if it does, it's only at the margins. McDonald's was doing pretty well before the recession hit and better once it did. But you can't really use any particular company as a definitive bellwether of the economy, whether on the way up or on the way down. There are just too many variables, both exogenous and endogenous, at work.

One of the exogenous variables affecting McDonald's just now is the strong dollar, which the company says contributed to a 7 percent drop in revenue in its second quarter. Another such variable actually counters the idea that the results show an end to the recession: grocery prices have fallen enough to persuade more people eat at home rather than at fast-food joints.

At the same time, McDonald's, even as it has attracted bargain-hunting consumers with its cheaper fare, has focused in recent months on higher-priced (and higher-margin) products, such as its McCafe coffee drinks and its new angus burger, which sells for $4.

"Such items may have drawn some attention from its value products, leading to weaker sales," says the Wall Street Journal.

McCafe "is a long-term home run for them, but given the high price of some items, it might not provide that sales jolt" in the short term, Telsey Advisory Group restaurant analyst Tom Forte told the Journal.