The famous global burger chain, McDonald's (MCD, Financial), released its turnaround plan just two days ago, and analysts speculating the stock are waiting to find out how the management plans to improve upon its declining sales. As Americans are gradually shifting to healthier food options, McDonald's is already facing the heat of competition of immediate rivals. To grow its sales, the management has released its plan-of-action which has points for discussion. Letâs take a sneak peek into the turnaround program provided from the managementâs end and judge whether the plan has impressed the analysts speculating on McDonald's stock movements.
The turnaround plan
McDonaldâs CEO, Steve Easterbrook, who took the helm in March, passed the message to Wall Street and the media that he understands âthe urgent need to fix his hamburger chain.â And so he did share some of the major steps that were being undertaken by the company to revive its dropping sales chart which would include focusing on three main areas â driving operational growth, revitalizing the brand image and âunlockingâ the financial value.
To turn the hamburger chain around and to make it a more progressive and modern restaurant chain, McDonaldâs CEO emphasized on making its franchisee network stronger and for working towards this point the company expects around 90% of its restaurants to be franchise-owned by 2018, up from 81% of the 36,000 global locations it is currently operating at. Earlier, McDonald's had sketched a plan of enlarging its refranchising program to a total of 1,500 stores by 2016 but now this has been extended to a total of 3,500 restaurant outlets by end of 2018.
The management shared the goal of improving its cost structure which could lead to cost savings of $300 million annually by 2017. To move towards such a goal, the company has shared its new organizational structure which would comprise four segments â United States, International lead Markets, High-Growth Markets and Foundation Markets. Interestingly, the first two segments accounted for around 40% each of the companyâs operating income in 2014, while the remaining two segments accounted for 10% each of operating income last year.
McDonald's remains eager to add to its shareholderâs wealth as this was well portrayed in the declared plan to return $8-$9 billion to shareholders this year, and thereby reach the top end of its 3-year $18-$20 billion target of returning cash to shareholders by end of 2016.
Did the plan pacify the Street?
The turnaround plan does not seem to have obtained a round of applause from the Street analysts who believe that there was less beef than expected till the plan was out. In fact, intricate details on how the company would focus on the food menu changes as its reputation is currently under pressure were not shared during the presentation by the CEO.
It is also to be noted that presently McDonaldâs relationship with the franchisees is at the all-time low as reported in a latest Reuters report. Under such a scenario, analysts are not very optimistic on growing the franchisee network for McDonald's.
The majority of the Street analysts have upheld their Neutral rating on the stock, with 22 out of 33 analysts listed on Bloomberg and covering the stock rating it as a Hold. Of the remaining 10 analysts on Bloomberg, 8 have rated it as Buy while the rest of the 3 rate it as Sell.
Final word
After all the excitement leading up to Mondayâs announcement, there is a feeling of too much âwait and watchâ in the plan of action and it does not seem to show any urgency as portrayed earlier by McDonaldâs CEO to the Street analysts. With McDonaldâs business suffering, analysts had expected more details from the top brass which was clearly missing in the announcement which included a 23-minute video presentation. In fact, the turnaround plan has failed to arouse the sentiments of the investors and has grossly disappointed the Street. But, having said that, letâs keep a watch whether the company is able to improve its revenue and cash flow through the new measures.
