It’s No Turnaround, But It’s A Start
Is McDonald’s (NYSE:MCD) new CEO finally turning this big ship around to get it back on track? If the recent quarterly report shows us anything, it’s that there’s still a chance he can salvage this mess.
McDonald’s has suffered a lot of negative press over the years, but to shareholders, it’s been everything they wanted and more. With a dividend yield of 3.5% and steady profits coming in, what’s not to like? But starting near the end of 2013, McDonald’s started sliding in U.S. comps. Then, on the back of a food scandal involving one of the fast-food giant’s partners and a food scandal of the company’s own, its comp sales in China, Japan and neighboring countries plummeted.
The company promised a turnaround, but for a long time didn’t give concrete details on how that was going to happen. With the exit of former CEO Don Thompson and the entrance of the new guy, Steve Easterbrook, it seems as if things are finally starting to go right for the industry leader.
The report
For the first time in a while, investors were excited about what McDonald’s had to share. Let’s take a look at a comparison between the company’s Q1 and Q2 reports:
- Q1: The company had an EPS of $0.84, versus a $1.06 consensus. It also brought in $5.96 billion in revenues, an 11% slide over the previous year.
- Q2: McDonald’s beat on both revenue and earnings with a Q2 EPS of $1.26 and revenue of $6.49 billion. Revenue was still down 9.6%, though, showing that there’s still a long road ahead.
- Q1: Global comp sales were down 2.3%, driven largely by a 8.3% decline in comp sales in AMPEA. The United States and Europe didn’t help though. Comp sales were down 2.6% and 0.6% in the regions respectively.
- Q2: Global comp sales were still down, but only 0.7%. The big wins were a 1.2% increase in Europe and stemming the bleeding in APMEA with a 4.5% decline. The U.S. remained weak, though, with a 2% slide.
Easterbrook said in a conference call with investors, “Looking ahead to third quarter, we expect positive global comparable sales led by growth in our newly-created International Lead Market segment and China's continuing recovery from the 2014 APMEA supplier issue..
While investors weren’t initially sure about how to react to the report, the stock reached over $100 in intraday trading before settling at $99.86 to close on July 31.
A threat
While McDonald’s is starting to bounce back nicely in Asia and Europe, the United States remains its largest market, which means if things aren’t going well in the U.S., things aren’t going well for the company.
One of the initiatives McDonald’s has is to reinvigorate its menu to include more quality food. But the third-pound sirloin burger and the double cheeseburger and fries don’t seem to be doing the trick. There was, however, a confirmation that the company’s plans to execute an all-day breakfast initiative is underway, which could be a boon for the company.
Conclusion
As McDonald’s continues to work toward a turnaround, investors should stay awake on the trends of the company. There are certainly good signs that the fast-food chain is finally getting back into the good graces of the customers in Asia. However, broad weakness in the United States will prove to be the real reason as to why the company will rise or fall. There’s still a chance for McDonald’s to make a turnaround. It’s just hard to say how the company will do it.
Disclosure: None.