Mcdonald's Corp

McDonald’s posts earnings drop, says it’s facing ‘formidable’ challenges
DOW JONES OCTOBER 22, 2014 7:48AM


McDonald’s is struggling to improve sales and admits it’s lost relevance for some customers. Source: AFP

MCDONALD’S Corp has promised significant changes after reporting a worse-than-expected 30 per cent drop in third-quarter earnings and calling its challenges “more formidable than expected.”

The world’s largest restaurant company has struggled to improve sales lately, and chief executive Don Thompson has said the company has lost relevance with some customers and needs to strengthen its menu offerings.

“By all measures, our performance fell short of our expectations,” Mr Thompson said.

He cited a variety of factors for the declines — a higher effective tax rate, unusual events in Asia and Europe, and continued underperformance in the US, its largest geographic segment.

“The internal factors and external headwinds have proven more formidable than expected and will continue into the fourth quarter,” Mr Thompson said, adding that he expects negative same-store sales worldwide in October.

“These significant challenges call for equally significant changes in the way we do business.”

Shares of McDonald’s, down 3.2 per cent over the past year to yesterday, fell 2 per cent in pre-market trading.

McDonald’s has faced challenges around the globe, ranging from a meat supplier scandal in China to store closures in Russia on alleged sanitary violations. McDonald’s in August posted its weakest monthly sales results in more than a decade.

The chain has focused on improving staffing at busy times and emphasising its breakfast and coffee offerings as it has lost traction with a key group of consumers — millennials, or those in their mid-teens to mid-30s — to fast casual restaurants that offer fresher fare.

Overall, McDonald’s reported a profit of $US1.07 billion, or $US1.09 a share, compared with $US1.52 billion, or $US1.52 a share, a year earlier.

McDonald’s said last month that the supplier scandal in China would reduce its earnings in the quarter by about 15 cents to 20 cents a share. The company has struggled to regain confidence in Asia after Chinese authorities accused a Chinese supplier this summer of intentionally selling expired meat to McDonald’s and other fast-food outlets.

Revenue fell 5 per cent to $US6.99 billion.

Analysts polled by Thomson Reuters had expected earnings of $US1.37 a share and revenue of $US7.18 billion.

Sales at restaurants open more than a year fell 3.3 per cent globally in the quarter. Consensus Metrix had estimated a 3 per cent decline globally.

Same-store sales in the US fell 3.3 per cent, slightly above estimates for a nearly 3 per cent decline. McDonald’s has struggled in the US as a complicated menu slowed service and young customers left in favour of fast casual chains. The company has been bringing back former executives in recent months as it attempts to stabilise the segment.

In Europe, same-store sales fell 1.4 per cent, compared with expectations for a less than 1 per cent drop, as weakness in Russia, Ukraine and Germany offset strong UK performance.

The Asia/Pacific, Middle East and Africa region’s same-store sales fell 9.9 per cent, dragged by the Chinese supplier issue, but still better than analyst expectations for an 10.6 per cent decline.

For September, the company reported Tuesday a 3.8 per cent drop in global same-store sales, after posting its weakest monthly sales in more than a decade in August. Same-store sales fell 7.5 per cent in its Asia/Pacific division in September, while sales in the US fell 4.1 per cent.

Dow Jones

McDonald’s China challenge: rising competition
DOW JONES OCTOBER 23, 2014 11:30AM

SHANGHAI-Echo Chen, a onetime McNuggets aficionado, represents the growing challenge McDonald’s Corp. faces as it looked to revive its fortunes in China.

The 30-year-old Shanghai native recalls how 10 years ago she felt excited when she went to McDonald’s. “I was young and it was new to me,” she said. But since then, restaurant offerings have proliferated in Shanghai, giving customers choices ranging from Yum Brands Inc. ’s KFC to local chain Zhen Gong Fu.

“There’s much more now,” Ms. Chen said.

The Oakbrook, Ill., burger chain on Tuesday reported its sharpest quarterly profit drop in seven years amid problems in a broad range of businesses and areas. Prominent among them is China, where a scandal at one of its meat suppliers caused a product shortage, limiting menu options and crippling sales in China, Hong Kong and Japan.

McDonald’s doesn’t break out sales by country, but its China problems helped drive its same-store sales down 9.9 per cent in the quarter ended Sept. 30 in its Asia/Pacific, Middle East and Africa region.

Analysts say the food-supply problem was temporary and that McDonald’s and others have bounced back after previous quality issues. But McDonald’s has a bigger problem in China, said Ben Cavender, senior analyst at China Market Research Group: Rising competition, both foreign and domestic.

A decade or two ago, many Chinese consumers were drawn to McDonald’s because it was their first Western dining experience or first time to eat out of the home, Mr. Cavender said. Since then, “the company went from being a cool option to just another choice in the market.”

Rivals are rapidly expanding across China. For instance, Dicos, owned by Taiwanese Ting Hsin International Group, runs more than 2,000 fried chicken stores in China. Guangzhou Real Kungfu Catering Management Co., also known as Zhen Gong Fu, sells individual rice and meat dishes in around 500 stores across China.

In less-developed cities, the American burger chain is facing increased competition from local operators like Hua Lai Shi Catering Management & Service Co., which has opened 3,000 stores selling fried chicken and french fries.

A spokeswoman said McDonald’s remains a top brand in China. The company has launched many initiatives, including new menu items and tie-ups with brands like Hello Kitty and World of Warcraft, she said, declining to comment further.

The company’s immediate goal is to bring back diners like Li Liang, who have opted to eat at home or at Chinese chains rather than going to McDonald’s over the past few months because of the food scandal. “Chinese food is just better for you,” said Mr. Li, a 31-year-old clothing salesman from Hunan province.

To bolster food safety, McDonald’s-which has more than 2,000 outlets in China-said in September that it plans to review surveillance video from meat-production sites in China and to boost audits of suppliers. It also created anonymous hotlines for suppliers and their employees to report unethical or noncompliant practices and the dispatching of quality-control specialists to all of McDonald’s meat-production facilities in China.

Longer term, McDonald’s has said it plans to take steps to overhaul its image and stay fresh in the eyes of consumers. Earlier this year itannounced an overhaul of a number of its stores in Beijing, Shanghai, Guangzhou and elsewhere.

In late July, Chinese authorities accused meat supplier Shanghai Husi Food Co., owned by U.S.-based OSI Group LLC, of intentionally selling expired meat to restaurant companies, following a television report alleging the practice. Six employees of the Shanghai plant were arrested for “selling substandard products.”

Sheldon Lavin, chief executive and owner of OSI, apologized to Chinese consumers in July for the problems and said he would focus on overhauling the company’s China business. The closely held company said in September it has faced financial loss in the market.

Food scares frequently emerge in the news in China, so much that consumers have become numb to them or bounce back quickly, said Mr. Cavender, the analyst.

McDonald’s has been hit by problems before in China, a critical growth market for the chain. Sales were hurt last year by negative publicity tied to avian flu and overuse of antibiotics in chicken. McDonald’s responded in April by announcing store remodeling and an advertising blitz that emphasized safety and health. It also added new local menu items, such as green-tea ice cream and rice dishes.

McDonald is always perceived as non-healthy food. More and more fast-food chain promoting healthy diet, which might put more pressure on McDonald PnL...

McDonald's CEO Don Thompson leaving after tumultuous run

McDonald's Corp , fresh off one of its worst financial years in decades, on Wednesday said Chief Executive Officer Don Thompson would leave at the end of February and be succeeded by Chief Brand Officer Steve Easterbrook.

Shares in the world's biggest fast-food chain, which have been underperforming major markets and several peers, jumped 3.2 percent in extended trading following the news.

Thompson, the 51-year-old former president of McDonald's USA who took the global helm in July 2012, had the challenge of adding to nearly nine years of sales gains at established restaurants.

But the following September, McDonald's reported a decline in same-store sales as it fought to hold on to customers with changing tastes and amid external pressures ranging political and economic turmoil in Europe to food safety scares in China.

"I don't think it was too much of a surprise. Maybe in the timing but not the action," Sanford Bernstein analyst Sara Senatore said. "This has been something that people have been talking about for a while."

McDonald's warned last week that business would be weak in the first half of 2015 and said it would cut its annual construction budget to the lowest in more than five years as it opens fewer restaurants in struggling markets.

The fast-food chain is also under pressure in the United States from a surge in competition from upstarts such as Five Guys Burgers and Fries, Chipotle Mexican Grill and other smaller, regional food outlets which are seen as offering fresher and higher quality products.

Easterbrook, who has been with the company since 1993, has also served as president of McDonald's Europe. REUTERS
http://www.todayonline.com/business/mcdo...son-retire

The builders of a $22 billion burrito empire—the founder, his father, his college buddies, key execs, and a couple of pig farmers—open up about how they won the fast-food future. And yes, they dish about McDonald's.

http://www.bloomberg.com/graphics/2015-c...cda68d6b84

(03-02-2015, 12:06 PM)getrich Wrote: The builders of a $22 billion burrito empire—the founder, his father, his college buddies, key execs, and a couple of pig farmers—open up about how they won the fast-food future. And yes, they dish about McDonald's.

http://www.bloomberg.com/graphics/2015-c...cda68d6b84

A good sharing of article. I moved the post to McDonald thread, as a threat to Mcdonald's Corp.

Thanks

Regards
Moderator

Burger King to McDonald's: Let's make a 'McWhopper'



NEW YORK • Burger King's mascot, The Burger King, is seeking a truce, albeit temporary, with McDonald's mascot Ronald McDonald.
The fast-food chain is reaching out to its long-time competitor with an unusual proposal: Create a hybrid of each company's signature burger - Big Mac and Whopper - and then sell it at a pop-up restaurant in Atlanta for one day.
The profits will go to an organisation that promotes world peace.


In full-page advertisements running in The New York Times and the Chicago Tribune yesterday, Burger King, a perennial also-ran in the burger races, has asked McDonald's, its battered but still potent arch-rival, to join forces.
Call it "McWhopper" diplomacy.

Quote:One sticking point might be the ketchup. McDonald's famously stopped using Heinz ketchup when 3G Capital bought the company, and Burger King has suggested using it on the McWhopper. And there is no word about which of the chains will supply the fries.

"We are being completely transparent with our approach because we want them to take it seriously," Mr Fernando Machado, senior vice-president for global brand management at Burger King, said in a statement. "It would be amazing if McDonald's agrees to do this."
Burger King created a website, mcwhopper.com, that includes a proposed recipe for the McWhopper. The sandwich has six ingredients from the Big Mac (including special sauce, all-beef patty and cheese), and six from the Whopper (flame-grilled patty, onion, pickles, among others).
One sticking point might be the ketchup. McDonald's famously stopped using Heinz ketchup when private equity group 3G Capital bought the company, and Burger King has suggested using it on the McWhopper. And there is no word about who will supply the fries.
Burger King has also mocked up hybrid employee uniforms and packaging for the burgers. It proposes opening the pop-up store on Sept 21, set by the United Nations as the day to celebrate world peace, in a carpark between a McDonald's outlet and a Burger King outlet.
"Corporate activism on this scale creates mass awareness, and awareness creates action and action saves lives," Mr Jeremy Gilley, founder of Peace One Day, said in a video posted on the mcwhopper.com website.
No Burger King executive was available for comment, but Mr Machado urged McDonald's to help "make history and generate a lot of noise around Peace Day". McDonald's declined to comment.
Burger King is now part of Canadian-based firm Restaurant Brands International, which was created by 3G Capital when it merged the burger chain with Tim Hortons, a Canadian restaurant chain.
The new owner cut costs, quickly improving the chain's financial performance. Improving sales proved a bigger challenge and, for a time last year, Burger King ceded its position as the world's No. 2 burger chain to Wendy's.
NEW YORK TIMES, BLOOMBERG

Maccas may put real estate on the menu

• JOANN S. LUBLIN, JULIE JARGON
  
• THE WALL STREET JOURNAL
  
• OCTOBER 19, 2015 12:00AM
  

[Image: 403872-24177824-753a-11e5-aecd-070d43501fda.jpg]
With sales struggling, McDonald’s is considering selling some of its real estate assets. Source: AP
[b]McDonald’s is close to deciding what, if anything, to do with its vast US real estate holdings, according to board member Miles White.[/b]
McDonald’s board and management haven’t made a decision yet, but “we have had a lot of review and a lot of debate”, said Mr White, chief executive of Abbott Laboratories and head of the corporate governance committee on the McDonald’s board.
McDonald’s has long emphasised the importance of owning its property. But with its sales slumping recently, some investors have called for it to spin off the US holdings — probably as a real estate investment trust, or REIT — saying it would benefit shareholders.
McDonald’s has examined options for its real estate before. The current review began before Steve Easterbrook became chief executive in March and involved an evaluation by outside consultants and financial advisers, Mr White said.
McDonald’s has said in recent months it is studying all financial options to boost shareholder value. Finance chief Kevin Ozan in July said the company would update investors on its plans in November.
Mr White said executives have evaluated “the long-term role of real estate” in sustaining McDonald’s performance and its context in a global business model. “Regardless of where we come out, somebody is going to be unhappy,” Mr White added.
Investors often like REITs because they tend to trade at higher multiples than retail companies and pay little or no tax on earnings as long as they distribute most profits through dividends. Hedge fund chief Larry Robbins, of Glenview Capital Management, said in a March letter to investors that McDonald’s could unlock at least $US20 billion ($27.5bn) in value if it were to spin off its US real estate.
But some Wall Street analysts say the odds of McDonald’s spinning off its real estate are slim. The company derives a huge and growing part of its revenue from its real estate. Rent payments from franchisees have risen 26 per cent over the past five years to $US6.1bn in 2014, accounting for more than a fifth of McDonald’s $US27.4bn in total revenue in a year when overall sales and profit fell.
Morgan Stanley analyst John Glass in a recent note called the possibility of McDonald’s forming a REIT “remote”, adding that doing so “does not create as much value as one might initially think”.
He estimated that McDonald’s US real estate was worth $US16bn to $US18bn.

MacDonald is an interesting company, the core is F&B, but probably the most profitable segment is property investment. The original game plan is to own, rather than to rent the properties, to supplement its F&B biz.

Let me OT a bit, With a similar strategy, will Sheng Siong face the same "problem" as MacDonald with a "vast real estates holdings", many years down the road?   

(not vested in MacDonald, but vested in Sheng Siong)

(19-10-2015, 09:50 AM)CityFarmer Wrote: MacDonald is an interesting company, the core is F&B, but probably the most profitable segment is property investment. The original game plan is to own, rather than to rent the properties, to supplement its F&B biz.

Let me OT a bit, With a similar strategy, will Sheng Siong face the same "problem" as MacDonald with a "vast real estates holdings", many years down the road?   

(not vested in MacDonald, but vested in Sheng Siong)

I think in the scenario if Sheng Siong is to face future problems in terms of generating enough growth, a more appropriate company to benchmark will be SEARS Holdings? My understanding is that SEARS holdings has tremendous land holdings but a declining retail performance, which might be similar to Sheng Siong.

Not an expert on this, but will like to learn more from buddies here who know more.

(19-10-2015, 10:04 AM)smalkmus Wrote:

(19-10-2015, 09:50 AM)CityFarmer Wrote: MacDonald is an interesting company, the core is F&B, but probably the most profitable segment is property investment. The original game plan is to own, rather than to rent the properties, to supplement its F&B biz.

Let me OT a bit, With a similar strategy, will Sheng Siong face the same "problem" as MacDonald with a "vast real estates holdings", many years down the road?   

(not vested in MacDonald, but vested in Sheng Siong)

I think in the scenario if Sheng Siong is to face future problems in terms of generating enough growth, a more appropriate company to benchmark will be SEARS Holdings? My understanding is that SEARS holdings has tremendous land holdings but a declining retail performance, which might be similar to Sheng Siong.

Not an expert on this, but will like to learn more from buddies here who know more.

Thanks for the lead, I will look into the SEARS.

BTW, Sheng Siong retail is growing now, and should continue in growth path in the next few years.