Having It Your Way with BKC by Malcolm Berko on Creators.com

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Having It Your Way with BKC

Dear Mr. Berko: What's wrong with Burger King? Why are earnings moving lower when McDonald's is heading higher? I like the Burger King menu, but I am disappointed that the shares have done so poorly. I nearly bought the stock in early 2008 at $30, and I am glad I did not. Now that the stock is nearly half its previous high price, do you think it would make good sense to buy 200 shares at $18 for a short-term bounce as the economy recovers? — E.P., Rochester, Minn.

Dear E.P.: I'm a Burger King (BKC — $18.23) fan. I think BKC makes the best double cheeseburger, best burger, best fish sandwich, best French fries, best shakes, etc., in hamburger land. I prefer BKC's junk food to McDonald's, Carl's Jr., Wendy's, Sonic, Methuselah's, Steak & Shake, Hardee's and Mom's. In fact, I'd drive a mile out of my way to taste all of BKC's artery busters. I don't mind the dirty floors. I don't use the smelly bathrooms or come in contact with the many surly, slovenly, over-heavy employees in uniforms two sizes too small and whose offending English is off-putting. I don't mind the dirty tables, the overflowing trashcans, the drab gray interior, the early dentist facade or the unclean kitchens.

I don't mind those things because I use the drive-through. However, lots of folks are not as forgiving as I am. They won't take their kids to BKC. They want well-lit, bright, upbeat, locations where they can be comfortable allowing their children to roam the premises. I've got four young grandkids, and when I give them a choice of fast-food restaurants, they enthusiastically opt for McDonald's.

Two of BKC's biggest problems are its physical plant and its labor force, many of who are probably rejects from homeless shelters.

Another negative is BKC's advertising.

It doesn't appeal to my grandkids or their friends. Its irreverent ads on TV focusing on its bigheaded King personality may be cool, but my 14-year-old grandson says that "it's creepy-jeepy!" (That's a new word used by young teenagers.) I've no kids at home and seldom watch TV, but my daughter tells me that BKC's "SpongeBob Square Butts" advertisement featuring the King mascot dancing with women who have "square butts" is distasteful. Now, if my daughter feels that way, then I can assure you that other mothers who form the tribunal of approval also share the same opinion.

And since BKC's revenues have been trending down, my daughter and other mothers have been voting with their feet and walking to Carl's Jr., McDonald's or Wendy's. BKC should consider changing its advertising agency and pink slip the dipsticks who approved those ads.

The near-term outlook is not sanguine. BKC's 2010 earnings will probably be about a dime lower than last year's $1.48, and while its 7.6 percent net profit margins beat the bejabbers out of Carl's Jr., Hardee's, Sonic, Papa John's, Darden, Domino's and Jack in the Box, it pales in comparison to McDonald's' double-digit 19.7 percent net profit margins. BKC has a book value of $8.65; debt is 44 percent of capital; and its balance sheet is modestly conservative. There are only 137 million shares outstanding, and they barely trade slightly above their 2006 IPO price of $15.

I think management will eventually get with the program; however, it may take a few years. I don't care a whit for BKC today, but I think it's a better-than-even bet that BKC could be a good long-term buy. So consider placing an open order to buy BKC at $15, and you may be able to sell it at $28 in late 2013.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.