MCD: Investors Left Playing the Waiting Game

Takeaway

Although heavy on content, McDonald’s Turnaround Plan was rather light on detail.  Management announced several initiatives that should keep investors content over the next few months, but the lack of color surrounding operational initiatives was disappointing.  CEO Steve Easterbook made it clear that there is more to come and held out a few carrots (potential for additional refranchising, leverage, and real estate scrutiny) for investors to nibble on.  With that being said, it is abundantly clear that the road to recovery will be a long, bumpy one.  We’re staying on the sidelines, for now, until management devises a strategic, actionable, and well-articulated plan to fix the operations of the business.

 

The Main Event

McDonald’s unveiled a reorganization of its business this morning in a video sent out by CEO Steve Easterbrook.  The company will transition to a new organizational structure within the following market segments: U.S., International Lead Markets, High-Growth Markets, and Foundational Markets.  The new structure will be supported by streamlined teams and fewer layers, which should allow for better focus within closely aligned markets.  By restructuring the company, management hopes to eliminate its cumbersome and stagnant decision making process.

 

McDonald’s also announced it will accelerate its refranchising efforts, with the intention of bringing its franchise/company owned mix to 90%/10% by the end of 2018.  The two initiatives combined should begin yielding $300 million in annual G&A savings by the end of 2017.  In addition, the company will return $8-9 billion to shareholders in 2015 and plans to reach the top end of its 3-year $18-20 billion cash return range by end the end of 2016.

 

New Market Segments

U.S.

  • Accounts for more than 40% of operating income
  • Will be led by current USA President Mike Andres

International Lead Markets

  • Australia, Canada, France, Germany and the U.K.
  • Accounts for approximately 40% of operating income
  • Will be led by current Europe President Doug Goare

High-Growth Markets

  • China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands
  • Will be led by current APMEA President Dave Hoffman

Foundational Markets

  • Remaining markets in the system
  • Will be led by current APMEA CFO Ian Borden