When McDonald’s Corporation (NYSE:MCD) announced its first-quarter financial results on April 22, it was clear that the quarter was pretty underwhelming. But for some reason, Wall Street ignored the abysmal numbers and bid MCD stock 2% higher that day.
That reason was the upcoming McDonald’s turnaround plan — a turnaround plan that was finally outlined by CEO Steve Easterbrook today.
McDonald’s needed a turnaround plan; over the past year, MCD stock has trailed all its major peers significantly. At market close on Friday, the McDonald’s stock price had lost 3% over the past year, a pretty miserable showing compared to the S&P 500’s 13% gain over that time.
But compared to its most direct competition, the MCD stock returns are even worse. Consider the following 1-year returns from some of its biggest competitors:
- Yum! Brands, Inc. (NYSE:YUM) stock rallied 18%.
- Wendys Co (NASDAQ:WEN) stock also gained 22%.
- Jack in the Box Inc. (NASDAQ:JACK) stock soared 60% higher.
Something’s clearly not working, and investors know that. That’s why Steve Easterbrook, who only just seized the reigns as McDonald’s CEO on March 1 after Don Thompson retired, had to quickly outline a turnaround plan to reignite investor confidence.
Highlights of the McDonald’s Turnaround Plan
McDonald’s CEO Steve Easterbrook outlined a number of things for the company to focus on in a 23-minute video posted on its website this morning. Although a bit vague and chock-full of corporate speak and buzzwords, if the plan is executed well, the MCD stock price should undergo a turnaround of its own.
Easterbrook kicked off the presentation with this slide. He sees McDonald’s as a modern, progressive burger company, and has a plan for how to make you see it, too.
It’s no surprise that MCD stock is down in early trading — slides like this don’t do a whole lot to explain exactly what the new vision is.
To his credit, Easterbrook goes on to give us some hints later in the video. He said the turnaround at McDonald’s will be a “operational growth-led turnaround,” and that “high quality food with better service each and every time” would be a top priority.
Increased franchising and a focus on the customer agenda will also be part of the MCD turnaround.
As for reorganization, Easterbrook wants to reorganize the company into four markets:
- The U.S., which he says is the source of more than 40% of operating income.
- International Lead Markets, which will consist of Australia, Canada, France, Germany, and the U.K. About 40% of operating income comes from these markets as well.
- High Growth Markets will be defined as China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands. Responsible for about 10% of operating income.
- Foundational Markets. Currently over 100 miscellaneous countries accounting for less than 10% of operating income.
McDonald’s had to come up with a turnaround plan of some sort, and CEO Steve Easterbrook sounds like a straight-shooter. Calling it a global turnaround, he was frank about MCD and the need for change: “Our recent performance has been poor,” he said. “The numbers don’t lie.”
No, they don’t. And until MCD starts putting up some better numbers as a result of this turnaround, today’s presentation is little more than a string of words on PowerPoint slides. Faith is appropriate in many areas of life, but investing isn’t one of them. I’ll believe this when I see it.
Until then, there are better restaurant stocks to buy.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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