MCD: A New Beginning

The first email we received from a client following the news of Thompson’s departure yesterday posed a simple question: “Should I chase MCD tomorrow?”

The answer was quite simple as well: “There is no need to chase it.”  The issues at MCD run deep and will take a lot of time to fix.  However, with that being said, we are moving MCD onto the Long Bench of our Investment Ideas list. 

As we’ve said many times, the only way to begin fixing McDonald’s was to get a new CEO.  Getting a new CEO is a step in the right direction, but where we go from here is still unknown.

Thoughts on the Announcement

  1. We like the choice of Steve Easterbrook as the new CEO.  We’ve known him for years and believe he is capable of turning the company around.  The first thing he must do is scrap the current turnaround plan and get a fresh start.  Can he, or will he, do that is the question.
  2. The timing of his departure presents some challenges to effecting change in 2015.  The marketing plans and product pipeline for 2015 are firmly in place.  McDonald’s is a big ship that will take a while to turn around.  Nothing will happen in the intermediate-term.
  3. Anything short of massive changes in the way MCD thinks about its current menu and store operations will fall short of the desired results.  This speaks to the mandate Mr. Easterbrook has been given by the board.
  4. The board of MCD is part of the problem the company faces.  The average age of the board is 64 and the average tenure is 13 years.  Andrew McKenna, non-executive Chairman of the Board of Directors, who announced the changes, is 84 years old.  There are two other board members that are in their 70’s.

The changes at MCD must run deep – starting from the board all the way down to store operations.

More to come.