McDonald’s Corporation (NYSE: MCD)
McDonald’s reported its earnings for the first quarter of 2015 last Wednesday and, not surprisingly, it was flat. While revenues came in-line with consensus estimates at $5.96 billion, earnings per share came in $0.06 lower than analyst expectations.
Despite coming in line with estimates, revenues still weren’t all peachy. According to the report, sales at restaurants that have been open at least 13 months (comparable sales) fell 2.3% at the global level, compared to an estimate of 1.8%. The worst offender was the Asia/Pacific, Middle East and Africa Group (APMEA), which saw a 8.3% slide due to ongoing customer perception issues in Japan and China. Comp sales in the United States also took a hit, declining 2.6%.
Return to agility?
While the report shows the fast food giant is still spinning its wheels, shares are still were still up almost 4% as the market opened. Why? At the end of the earnings call, chief executive Steve Easterbrook closed with a quote from McDonald’s founder Ray Kroc, “Take calculated risks. Act boldly and thoughtfully. Be an agile company.”
With that, Easterbrook shared that the company is ready to take risks to stay competitive and to debunk the perceptions that it doesn’t serve real food, hinting at a May 4 turnaround announcement. A couple weeks ago the company announced a trio of “Sirloin Third Pound” burgers for a limited time starting later this month, the latest sign that the company is trying to improve its food quality. This came after an announcement that it would simplify its grilled chicken recipe, decreasing the use of chicken antibiotics and increasing pay and vacation for employees and company-owned stores in the US (which is about 10% of all restaurants).
Hope for a new paradigm
In a way, the jump in the share price shows investor confidence that McDonald’s is finally turning a page, that it’s opening up a new paradigm of taking risks in order to stay competitive. While there are still obvious obstacles in the way, Easterbrook has so far made an indelible impression of a fresh outlook on the company’s future. If this is truly the future of McDonald’s, it should be easy for investors to forget the last 18 months and look instead toward the future.
The one thing it will need to keep in mind, though, is that you can’t hope to compete by being everything for everyone. McDonald’s has its own niche and it would be unwise to try to compete with each individual rival chain by mimicking its menu. The current testing of all-day breakfast in San Diego is the perfect example of what McDonald’s should be doing. Find out what already works and hit it again and again.
McDonald’s has been under a constant barrage of fire for a long time from customers and investors. Why it’s taken this long to make so many positive changes is a mystery. But now that it’s here, the stock is more intriguing than ever.