Market’s Positive Speculation Ahead Of McDonald’s New CEO’s Business Plans Drives Stock Price Close To $100

McDonald’s Corporation (NYSE:MCD), the struggling leader in the U.S. restaurant industry, has been witnessing a lot of activity, both operational and financial, over the last few weeks. The Golden Arches began 2015 fiscal year with a plan to regain the momentum. On January 28, the company’s Board of Directors announced the retirement of Don Thompson as President and CEO of McDonald’s, to be succeeded by Steve Easterbrook, the current chief brand officer and senior executive vice-president of the company, on March 1. ^[1] Soon after the announcement, the company’s stock (MCD) jumped 5.6%, the highest in the last 12 months, from $88 to $93.

Don Thompson’s decision came as a result of the company’s sluggish performance over the last two years, especially in 2014, when the fast food leader faced challenges in all the geographical segments. In the fiscal 2014, the company’s net revenues declined 2% y-o-y, driven by the declining consumer traffic in Asian markets, as well as stiff competition in the domestic market (U.S.). Due to the China meat scandal in August, as well as weak performance in the U.S., the company’s operating income for the fiscal 2014 year declined 9% y-o-y. McDonald’s reported a diluted EPS of $4.82, down 13% y-o-y. ^[2] For the fourth quarter, the company reported a 0.9% y-o-y decline in the comparable store sales, which resulted in a 7% y-o-y decline in net revenues. Diluted EPS for the fourth quarter was down 19% y-o-y to $1.13, primarily due to the supplier issue in China. The company expected its January comparable sales for Asia-Pacific to be negative as well, due to the declining consumer confidence in Japan.

We have a $96 price estimate for McDonald’s, which is roughly 3% below the current market price.

See Our Complete Analysis For McDonald’s Corporation

No Respite In Asia For McDonald’s

On February 9, the company released the sales figures for the month of January. McDonald’s reported increased comparable store sales in the U.S. and Europe by 0.4% and 0.5% year-over-year (y-o-y) respectively. In the U.S, the slight improvement was driven by the company’s performance during the breakfast day part, partially offset by strong competitive activity by other fast food chains, such as Restaurant Brands International Inc. (TSX/NYSE:QSR), Dunkin’ Brands (NASDAQ: DNKN), and Yum! Brands. McDonald’s Europe  segment was influenced by positive growth in the U.K. and Germany, partially offset by negative results in France and Russia. The company plans to strategically improve sales in and customer count in Europe by strengthening local platforms and revamping the breakfast menu. ^[3]

On the other hand, APMEA (Asia/Pacific, Middle East and Africa) segment’s comparable store sales further diminished 12.6% y-o-y, indicating the declining customer trust in the brand in Japan and China. The recovery campaign in Japan has not been that effective. To add insult to injury, new issues have emerged in the country, as there were reports that a piece of vinyl was found in the chicken nuggets at one of the outlets in Aomori, Japan. ^[4]  McDonald’s Japan might take much more time to return to a normalized level.

Stock Jumps As Ex-Dividend Record Date Nears

In the fourth quarter, McDonald’s increased the quarterly cash dividend per share by 5% to $0.85, taking the annual dividend to $3.28 per share. Moreover, the company’s stock went ex-dividend yesterday with the record date on March 2. As a result, the company’s traded volume rose to 16.6 million for the last two days, which is 2 to 3 times the normal traded volume this month. However, the highlight is the fact that the increase in volume traded is almost twice the volume traded on the last three similar occasions (announcement of ex-dividend date) in 2014. The probable reason behind this situation might be the take-over of the CEO position by Steve Easterbrook on March 1. This indicates that the buyers are expecting a positive outlook by the new CEO, and hence an optimistic market led to a 5% jump in the stock price from $94 to $99.

It will be interesting to see the business plan and strategy that will be undertaken by the new CEO, and the market’s reaction thereafter.

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1. McDonald’s announces key management changes [↩]
2. McDonald’s Q4 2014 earnings call transcript [↩]
3. McDonald’s reports global comparable sales for January [↩]
4. McDonald’s Japan faces fresh problem with chicken nuggets [↩]