Seeking Alpha: Arcos Dorados Hits Bottom, Finds A Shovel

Arcos Dorados (NYSE:ARCO) has been every kind of lousy, falling another 28% since the last time I wrote about the stock. Since that last article, the situation in Venezuela has gotten worse and between Brazil, Argentina, Venezuela, and Mexico, Arcos Dorados has problems in markets that represent around 90% of the business. If that wasn't enough, I believe management's options to improve margins are more limited than I previously appreciated and the company is uncomfortably sandwiched between capex obligations to McDonald's (NYSE:MCD), violations of its debt covenants, and limited cash flow prospects.

Even with a hack-and-slash to growth expectations, shares could be more than 30% undervalued on a long-term cash flow basis but I have to admit less and less confidence in the long-term outlook for Arcos Dorados. Instead, I'm more willing to value the stock on 8x 12-month EBITDA, which works out to just $7/share. Maybe my capitulation here marks some sort of bottom, and I do still believe that the combination of McDonald's brand value and an under-penetrated fast food/quick service sector in Latin America can still produce value, but you have to have an iron-clad risk appetite to hold this name right now.

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Arcos Dorados Hits Bottom, Finds A Shovel

Seeking Alpha: Arcos Dorados Still Several Fries Short Of A Happy Meal

It's tough to grow a business when two large markets are convulsing under the weight of horrible macroeconomic mismanagement, but Arcos Dorados (ARCO) isn't going to get a free pass just because the problems in Argentina and Venezuela are not its fault. Inflation, affordability, and competition remain challenges across the company's operations and I don't fault investors who want nothing to do with another Latin American consumer stock groaning under the weight of macroeconomic issues.

The shares of Arcos Dorados are down about 10% from when I last wrote, and the story remains frustratingly similar. There is significant growth potential in the business, as it could double the number of McDonald's (MCD) stores it operates over the next decade, but potential isn't worth much if the actual results don't get better.

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Arcos Dorados Still Several Fries Short Of A Happy Meal

Seeking Alpha: Arcos Dorados Stronger Than Its Stock

It's cold comfort for shareholders, but it seems like Arcos Dorados (ARCO) has gotten sucked into the same "anti-polar" vortex as many other consumer-oriented Latin American stocks. With the USD/BRL exchange rate moving from 2.03 to 2.37 over the past year and the USD / MXN rate moving from 12.67 to 13.08, worries about consumer spending trends in markets like Brazil and Mexico and the economies of Argentina and Venezuela are almost secondary.

The good news is that, as an operating company, Arcos Dorados is still doing pretty well. Sluggish comp growth in Brazil is a worry, but comps have generally been picking up and margins seem to have stabilized. I'm looking for strong comp growth and unit expansion to drive revenue growth, and I believe the shares are meaningfully undervalued today. All of that said, investors are going to have to be able to deal patiently with the ups and downs of currency movements or take a more aggressive view towards entering, exiting, and re-entering the shares.

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Arcos Dorados Stronger Than Its Stock

Investopedia: Arcos Dorados Still Several Fries Short Of A Happy Meal

Investors who bought Arcos Dorados (Nasdaq:ARCO) thinking they were getting McDonald's-like (NYSE:MCD) consistency with a Latin American growth kicker have been badly surprised over the past year, as Arcos Dorados' performance has lagged its franchiser's performance by roughly 25%. A lot of what has hurt the company is arguably out of management's control, as weakening consumer conditions across much of Latin America (including Brazil and Mexico) and persistent inflation make operations much more challenging. Although these shares do appear undervalued relative to their long-term potential, management has a lot of work to do to realize that potential.

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Investopedia: Yum! Brands On Simmer For Now

Given that the company's troubles in China are very well known now, there's not much for Yum! Brands (NYSE:YUM), or its shareholders, to do but wait for things to get better. The company continues to look for growth in other emerging markets, while driving good profits from its U.S. operations, but it's going to take a while for markets like India, Russia, or Africa to make a difference relative to China. In the meantime, the shares don't look like that much of a bargain.

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Seeking Alpha: Arcos Dorados Somewhere Between Gold And Scrap Iron

For the most part, investors can't seem to get enough of Brazilian consumer stocks, bidding many of them up to exceptionally demanding valuations. And to be fair, many of these companies are producing pretty solid growth numbers. In the case of Arcos Dorados (ARCO), though, a combination of sluggish comp-store growth, rampant cost inflation, and fears of competition seem to be combining to create a stock that many investors are pretty ambivalent about today. While it is important that investors not understate the risks to the Arcos business model, I think these shares could be an interesting speculative play at these levels.

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Arcos Dorados Somewhere Between Gold And Scrap Iron

Seeking Alpha: Brasil Foods A Bipolar Brazil Play

There's an old joke that goes something like this - what is a long-term investor? A short-term investor that won't admit a mistake, take a loss, and move on. I don't happen to subscribe to that point of view, but I do admit that Brasil Foods (BRFS) is not the easiest stock to own as Wall Street wavers between breathless enthusiasm for emerging markets and rank skepticism about those same markets.

Brasil Foods absolutely has real challenges today, but the long-term potential for this Brazil-based global food company is enough to keep me interested in the shares.

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Brasil Foods A Bipolar Brazil Play

Investopedia: Brazil Limiting The Happy In Arcos Dorados' Happy Meals

McDonald's (NYSE:MCD) may be the leading dining concept in Brazil and much of Latin America, but that doesn't promise smooth sailing for its large franchisee/operator Arcos Dorados (NYSE:ARCO). Not only are operating expenses pressuring margins, but overall economic conditions and rising competition in Brazil are squeezing numbers from the other side as well. Although these shares do not look too expensive today, investors need to appreciate the above-average volatility if they choose to nibble on these shares.

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Seeking Alpha: McDonald's Looks Vulnerable To Indigestion

The trouble with great businesses is that they give investors so few chances to buy in at discounts to fair value, and that's the problem with McDonald's (MCD) today. While there's no reason to think that the company's share gains or excellent margins will abate, the Street already has baked in exceptional performance for many years to come. Even with this restaurant's consistent record of surpassing expectations, it looks like a bad setup for new investors.

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McDonald's Looks Vulnerable To Indigestion

Investopedia: Arcos Dorados Feels The Squeeze

After a big bounce early in 2012, investors are taking a step back and realizing that conditions in the emerging markets may not be as bad as feared, but they're not as good as hoped. As a direct play on consumer spending in Latin America and Brazil, Arcos Dorados (Nasdaq:ARCO) shows a lot of that push-pull dynamic. Although underlying growth is OK and growth potential is significant, investors have gotten spooked by slower sales growth and greater cost impacts than originally feared.

Squeezed at the End of the Year 

Arcos Dorados had a challenging fourth quarter that came in a little short of initial expectations. Revenue rose more than 10% as reported (about 16% in constant currency), on a better than 11% same-store sales growth number.

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Investopedia: Yum! Brands Gives Its Skeptics Indigestion

Looking back, maybe it's not so hard to see why quick-service restaurants would do well in a tougher economy, but the performance of the top brands has been nothing less than blistering. In the case of Yum! Brands (NYSE:Yum), the story continues to be all about China. With Yum! still set on turning China into a fast food nation, it would be dangerous to assume that the company's remarkable growth is due to slow anytime soon. (For related reading, see Investing In China.) 


Q4 Earnings Trade a Little Margin for Growth
There was no question that Yum! Brands saw fine growth in the fourth quarter. Total revenue rose 15%, with reported U.S. revenue down a little (though up in the mid-single digits on an adjusted basis), International up about 7% and China up a torrid 39%. Not surprisingly, same-store sales show a similar breakout - China's same-store sales growth was an eye-popping 21%, while International growth was much more modest (up 3%) and U.S. results were fairly soft (up 1%).

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Seeking Alpha: FEMSA Richly Valued, But Rich In Growth Opportunities

Like most other emerging markets, 2011 was a disappointing year for Mexico. Despite a drop of worse than 20% in the Bolsa, consumer products concern FEMSA (FMX) had a quite a strong year. While FEMSA's stock is no longer a bargain, patient investors may yet see further growth in the company's core OXXO franchise as well as new growth initiatives and capital redeployments that could build meaningful long-term value.

The Future In C-Stores
Although FEMSA's interests in Coca-Cola FEMSA (KOF) and Heineken are nothing to ignore, the company's OXXO convenience store franchise is really the story right now. With over 9,000 stores and about 5% share of Mexico's food and convenience retail market, OXXO is the dominant C-store franchise in Mexico and one of the most profitable retailers in the region – surpassing the likes of WalMex (WMMVY.PK), Cencosud, and CBD (CBD).

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FEMSA Richly Valued, But Rich In Growth Opportunities

Investopedia: Arcos Dorados - Rare Or Overcooked?

What happens when emerging markets start seeing better incomes and higher standards of living? In the earliest days, it means cell phones, televisions and motorbikes. Later, it can mean adding more protein to the diet. Still later, it often means spending on luxuries like dining out, and American quick-service restaurants often represent affordable luxury in many parts of the world.

To that end, Arcos Dorados (NYSE:ARCO) is not only a play on improving economic conditions in Latin America, but a way to play one of the faster-growing markets for the proven and globally-successful restaurant chain McDonald's (NYSE:MCD). While it's one of the very few direct investment plays available to American investors within this trend, it's not exactly the cheapest stock by many standards.

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Seeking Alpha: Arcos Dorados - When Quality Meets Scarcity

Investors who want to play the significant improvement in the quality of life and buying power of consumers in Latin America are not exactly spoiled for choice. With regulatory burdens and costs making U.S. listings increasingly seem like more bother than they're worth, there is only a scant handful of direct consumer plays for the region.
That scarcity value alone would make Arcos Dorados (ARCO) interesting. But given that this large McDonald's (MCD) franchisee also happens to be delivering very solid growth as well, it is worth a look from investors looking to play the emerging consumer trend in Latin America.

Slinging a Lot More Burgers South of the Border
Arcos Dorados saw revenue jump nearly 29% on a reported basis for the second quarter, or nearly 19% on a constant currency basis. Same-store sales chipped in 15% growth, as the company continues to benefit from traffic and ticket growth across its operating geography.

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Arcos Dorados: When Quality Meets Scarcity

Investopedia: Is The U.S. Holding Back Yum! Brands?

The list of American companies that have done a better job than Yum! Brands (NYSE:YUM) of growing their brands and business in China is a short one indeed. In fact, YUM has been so successful in its international growth that it is now worth wondering if the U.S. business is still capable of being part of the company's future growth plans, or whether there might be some sort of "value-unlocking" transaction in the company's future. 

Second Quarter Results Tell a Story  
Overall, YUM reported that sales rose more than 9% in the second quarter, surpassing the average estimate by more than $100 million, but not quite beating the highest estimates in the range. There are no two ways about it - China was the story here. U.S. same store sales fell 4% as Taco Bell and KFC were both weak, but Chinese same-store sales shot up 18% on 21% higher store traffic. The company's other foreign operations were a more moderate grower, with 2% same-store growth. 


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