McDonald's turnaround on track
Nov. 11, 2015
by Erica Shaffer
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Most of McDonald's refranchising will take place in its High Growth markets, which includes China.
OAK BROOK, Ill. – McDonald’s CEO Steve Easterbrook said the fast-food chain is gaining momentum from the company’s turnaround plan. McDonald’s reported its first gains in US and global sales in two years in the third quarter; and more growth is in the future, executives with the company said during a meeting with investors on Nov. 10.
The company maintained its guidance of positive fourth quarter comparable sales in all segments. Additionally, the company’s board of directors raised the fourth quarter dividend by 5 percent to 89 cents per share.
|Steve Easterbrook, McDonald's CEO
“My priorities for McDonald's as a modern, progressive burger company are three-fold: driving operational growth, creating brand excitement and enhancing financial value,” Easterbrook said. “We are taking bold, urgent action to reset the business and prepare the company for the next chapter of its history.”
That next chapter will include more franchised units, the company said. McDonald’s raised its refranchising target to 4,000 restaurants from 3,500 which will accelerate the pace of refranchising and puts the global franchised percentage to about 93 percent, up from 81 percent, by the end of 2018. The adjusted refranchising target will enable McDonald’s the reach a long-term goal of becoming 95 percent franchised. Most of the refranchising will take place in the company’s High Growth Markets, which includes China, and the Foundation Market segment.
The company raised its savings target for General and Administrative expenses to $500 million, most of which will be realized by the end of 2017, McDonald’s said. The new target represents a 20 percent decrease from the company’s G&A base at the beginning of 2015. “These savings will be realized through our refranchising efforts, streamlining across corporate, segment and market organizations, primarily in non-customer facing functions, and realizing greater efficiencies in the company’s Global Business Services platform,” the company explained. “This target excludes the impact of foreign currency changes.”
Shareholders can expect to receive a higher dividend as the company increased its cash return to shareholders target to about $30 billion for the three-year period ending 2016. To accomplish this, the company will take on more debt, said Kevin Ozan, CFO.
|Kevin Ozan, CFO, McDonald's
“After a thorough evaluation over the last few months, we are optimizing our capital structure by adding a meaningful amount of additional debt,” Ozan said. “Although this will result in a credit rating downgrade, this still strong investment grade credit rating enables us to efficiently and cost effectively access capital globally, while allowing for continued investment in the business and McDonald’s system.”
Ozan added that expectations for 2016 include system-wide sales growth of 3 percent to 5 percent; and operating income growth of 5 percent to 7 percent, excluding potential charges in 2016. Capital expenditures will reach about $2 billion split between opening 1,000 new restaurants and reinvesting in existing restaurants.
“Our confidence in the future of McDonald’s is well-founded. We have set in motion a series of changes in how we do business that will turn around our business at a time when the informal eating out industry continues to grow around the world,” Easterbrook said. “As we look to capitalize on this opportunity, I am inspired by the dedication and resilience displayed throughout our US, International Lead, High Growth and Foundational Market segments — each of which is making a meaningful contribution to the turnaround plan. Moving forward, we will continue to measure our progress and be held accountable at each step throughout the turnaround as we work to deliver sustained profitable growth.”