Despite Favorable Headwinds, McDonalds (MCD) Reduces Geographic Reach

McDonalds (MCD) doesn't need too much introduction. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. McDonald's restaurants operate in the U.S. and Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America.

Although the restaurant industry has been performing strongly in the recent past, the company will close at least 700 of its restaurants, which is twice the number that was expected to close early this year.

In the first trimester of 2015, McDonalds has experienced a 2.3% decrease in sales and a fall of 28% in revenues, continuing the trend of loss that the company has been experiencing for years.

In July, the firm expected its 2015 third quarter comparable sales to turn positive, reversing a negative trend since 2014. Revenues decreased by 9.53% and led earnings per share decreased in the second quarter compared to the same quarter a year ago ($1.26 vs. $1.40).  Further, compared to where it was trading a year ago, the share price has not changed very much principally to flat earnings.

Speaking on a conference call with Wall Street Journal earlier this week, the new CEO, Steve Easterbrook said that major changes will be needed to improve the reputation of McDonalds. On March 1, Mr. Easterbrook was promoted to president and chief executive officer of the company and since then, the market is waiting for their restructuring plan for the company.

More than 100 recent closures have occurred in Japan, where McDonalds has faced a series of scandals relating to the quality of its food.

In recent months, McDonald's and other popular brands of junk food are falling out of favor, as people become more aware of their diets. In fact, genetically modified foods are rapidly losing the confidence of consumers.

Another junk food giant, Coca-Cola (KO), is also facing financial challenges as sales steadily decline. Some fast food restaurants, ­such as Burger King, have eliminated sodas meals for children, in an attempt to appear more concerned about the health of their customers.

Tennessee-based Southeastern Asset Management founded in 1975 by Mr. Hawkins (and three others) holds 9.87 million shares, valued at $938.3 million at the end of the second quarter. Although this hedge fund is the major shareholder of the stock, in that time frame it reduces the stake by 10%. Others hedge fund managers like Louis Moore Bacon, Jim Chanos, John Burbank or Jim Simons were more bearish in the April-June period and sold out their entire positions.

Published on Sep 22, 2015
By Omar Venerio
Capital Markets, Derivatives and Financial Management Professor, Master in Finance and CFA candidate. I am an independent trader of stocks and options and passionate about the stock market.

Copyrighted 2016. Content published with author's permission.

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