We apologize for the sound issues on this morning's Macro Show.
The Macro Show is Hedgeye's dynamic pre-market rundown highlighting the most important global macro developments where CEO Keith McCullough shares 15 minutes or less of prepared market analysis and commentary and then answers your questions in a live Q&A session.
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
International Lead Markets
Takeaway: Value levers need to be pulled to offset the negative fundamental momentum. This was not a good quarter.
Q & A
Takeaway: We are removing German Equities from Investing Ideas today.
Please be advised that we are removing German Equities (EWG) from Investing Ideas today.
Below is a brief note from Hedgeye CEO Keith McCullough on the decision.
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