McDonald's falls short of expectations
Oct. 21, 2014
by Eric Schroeder
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OAK BROOK, Ill. — Weak results in the United States was one of several factors contributing to a difficult quarter at McDonald’s Corp. The fast-food chain posted net income of $1,068.4 million in the third quarter ended Sept. 30, equal to $1.09 per share on the common stock, down 30 percent from $1,522.2 million, or $1.52 per share, in the same period a year ago. Revenues were $6,987.1 million, down 5 percent from $7,323.4 million.
“McDonald’s third-quarter results reflect a significant decline versus a year ago, with our business and financial performance pressured by a variety of factors — from a higher effective tax rate, to unusual events in the operating environments in APMEA and Europe, to under-performance in the US, our largest geographic segment,” said Don Thompson, president and CEO. “While our ability to withstand these factors is a testament to the company’s enduring brand and strong financial foundation, by all measures our performance fell short of our expectations.
“We recognize that we must demonstrate to our customers and the entire McDonald’s system that we understand the problems we face and are taking decisive action to fundamentally change the way we approach our business.”
The changes include a new global approach designed to increase the company’s relevance with customers and drive guest traffic. Specifically, McDonald’s said it plans to focus on three areas:
• McDonald’s Experience of the Future — a comprehensive restaurant execution concept that elevates the menu and customer experience elements that are hallmarks of the McDonald’s brand, and capitalizes on investments in reimaging, service and technology enhancements to improve the look, feel and convenience of the McDonald’s experience in ways that are in-tune with today’s consumer needs;
• Digital strategy — a global strategy built around simplifying the customer journey across ordering, payment and mobile offers, beginning with the implementation of relevant new options, such as Apple Pay; and
• Resourcing for growth — a review of the organization’s structure and use of resources in order to redirect spending toward those initiatives, such as the digital strategy and the McDonald’s Experience of the Future, that will support the company’s key long-term growth initiatives.
Reflecting on third-quarter results, McDonald’s said comparable sales in the United States fell 3.3 percent, driven by negative guest traffic amid sustained competitive activity. Operating income fell 10 percent as initiatives to address the current market dynamics failed to drive improved financial results.
McDonald’s recently elected Mike Andres as president of its US operations. Andres has been charged with moving quickly to implement new initiatives designed to deliver “a flatter, more nimble organization that ensures key business decisions are made closer to the customer, by people with local market expertise. A revamped marketing approach that links national messaging around our food quality, brand transparency and people initiatives — complemented by local ad campaigns that are responsive to individual market preferences, and a simplified menu that showcases the company’s core products and features locally-relevant menu options — available in new, customizable ways.”
For the nine months ended Sept. 30, net income at McDonald’s Corp. was $3,660.3 million, or $3.69 per share, down 13 percent from $4,188.9 million, or $4.16 per share, in the same period a year ago. Revenues were $20,869.1 million, down 1 percent from $21,012.5 million.