Signs of Global Recovery: Drive Thru

At first glance, the humble hamburger is an unlikely barometer of global economic health, but as one of America's great contributions to world cuisine and corporate prowess, it’s actually a pretty good indicator of the state of the recovery.

McDonald's (MCD), the fast food chain that commoditized the burger, has sold more than 100 billion beef patties around the world during its 69 years in business. And, for most of those years, the U.S. and its growing appetite contributed substantially to sales gains. What a difference a recession makes.

On Monday, the company reported a 3.3% increase in global same-store sales, even though U.S. sales actually declined 0.1% from a year ago. The increase came entirely from overseas markets. Fast food in the U.S. style has penetrated established markets – the underground mall by the Louvre in Paris will soon get a McDo (an informal French nickname) – and emerging economies, where flavorful fries are a status symbol and an affordable expense for increasingly consumer-oriented societies. Welcome to the Big Mac bull thesis.

"The five-year-old son of some friends of mine from Romania was visiting our family, and when he saw the sign, he said, 'Hey look – they also have McDonald's here!' " says Adrian Ciocoi, an emerging markets analyst working with Riedel Research Group, an independent global equity research firm based in San Francisco. "It is no longer just a U.S. brand symbol."

That's no accident. McDonald's global presence now accounts for nearly two-thirds of its revenue, double the proportions of 1991. Right around then, management ramped up international expansion, in part to grab an early foothold in Eastern Europe and the former Soviet Union. As those countries made the often jarring transition to market economies, strong brands like McDonald's, Coca-Cola (KO) and PepsiCo (PEP) were able to hit the ground running. They haven't looked back.

U.S.-based multinationals have been turning in strong showings derived from improved overseas profits, which have climbed with actual sales growth and a weak dollar that inflates earnings figures, even as the U.S. currency buys less overseas. It's a source of some worry, even for a global bull like economist Ed Yardeni, chief economist at Yardeni Research. However, it's better for an economy to be active than moribund, he says. "While the mother of all global liquidity bubbles may be inflating asset prices, it is also reviving global economic activity," he wrote Tuesday.

That global sales growth – and the potential for further expansion – is among the factors that put McDonald's on Los Angeles investment bank Wedbush Morgan's Best Ideas stock list in a Nov. 2 report. North America's appetite for fast food has been, well, saturated, with 47 McDonald's restaurants per million people, well above the nine restaurants per million people in Europe and the paltry two per million in the company’s far-reaching Asia-Pacific, Middle East and Africa region.

McDonald's international growth rates are a model for the globalizing of a U.S. multinational company. In 1990, McDonald's had about 3.600 international outlets. A divided Germany was scrambling to reunify after the collapse of the Berlin Wall, and China was in near-total lockdown, a smoldering global pariah following the 1989 massacre of student demonstrators in Tiananmen Square.

But Mayor McCheese was a persuasive diplomat. Today, there are more than 17,500 global outlets in 118 countries, and diners can buy a cheeseburger within strolling distance of Checkpoint Charlie and the Forbidden City.

It's not just McDonald's that's on a long march to spark global appetites. Yum Brands (YUM) the parent of KFC, Taco Bell and Pizza Hut, now has a separate China division, and it's the top market for new company restaurant development worldwide. In 2008, its operating profits hit $469 million and Yum opened more than 500 new restaurants in mainland China.

Ciocoi says there's a bit of a chicken-and-Egg McMuffin dynamic at work in gauging the global economic recovery through multinational proxies like McDonald's.

"About 80% of countries now believe the recession is over," he says. "So, is it because the recession is over worldwide that McDonald's reports good numbers overseas, or is it because those kinds of companies are showing a trend of more consumers returning to their stores? I think it's probably some of both."

He says smart companies that can achieve a lower reliance on the U.S. market are doing so, and even the most battered industries will see benefits. "General Motors did not give up their Opel unit in Germany," he says of last week's collapse of a plan to sell off the European brand, a deal first undertaken a year ago, when GM’s survival was in question. "People there are purchasing cars and have purchasing power, and that was a big part of the decision not to get rid of that operation."

Indeed, GM CEO Fritz Henderson made a point of describing the Detroit-headquartered company's "improved financial position," and its newfound confidence in the "sustainable profitability" of the overseas subsidiary. The abrupt reversal wasn't great for German Chancellor Angel Merkel, nor the 10,000 or so workers who will lose their jobs as Opel streamlines for survival, but Ciocoi says it underscores the fact that "smart U.S. corporations see the potential and capitalize on the benefits" of truly global revenue streams.