McDonald’s Is Coping With Several Issues

I’ve not been pleased with the performance of McDonald’s ($MCD) this year. I added MCD to this year’s Buy List at what I thought was a very good price. The problems at the fast food joint, however, have been more serious than I anticipated.

MCD missed earnings by three cents in April and by four cents last month. The company is on pace to earn about $5.65 per share this year. What’s also troubling is that MCD has also been plagued by issues that aren’t much under their control, such as possible sanctions in Russia.

Investors, analysts and franchisees are clamoring for the company to stop trying to be “all things to all people”. They want it to simplify its unwieldy menu and point to the success of rivals like Chipotle Mexican Grill Inc and In-N-Out Burger, which have won passionate fans by selling just a few items.

McDonald’s was caught up in the latest China food safety scare after a July 20 television expose showed workers allegedly mishandling meat at Shanghai Husi Food Co Ltd, a factory owned by OSI Group LLC, a major supplier to the chain.

When the story broke, McDonald’s China business had been rebounding from the double whammy of a food safety scare and a bird flu outbreak that crushed sales in 2013.

McDonald’s roughly 2,000 restaurants in China suffered meat shortages after it ended its relationship with OSI China. Executives from the chain’s long-struggling Japanese unit, McDonald’s Holdings Co Ltd, who were forced to find alternate chicken McNugget supplies, said the scare sent sales down as much as 20 percent.

(…)

The bigger concern, she said, are McDonald’s troubles in Russia, where the company has about 400 restaurants.

Against the backdrop of the political tussle over U.S. sanctions imposed on Russia because of Moscow’s intervention in Ukraine, Russia’s chief sanitary inspector Anna Popova on July 25 accused the company of violations “which put the product quality and safety of the entire McDonald’s chain in doubt.”

Europe contributes about 35 percent of McDonald’s operating profit. The company does not break out country-specific contributions, but Russia “up until recently had been one of the stronger markets for them in Europe,” Senatore said.

I still think that most of the issues at McDonald’s are fixable, but I’m not sure if the current management team is up to the task. The stock is down to $94 compared with $104 in May.

Posted by on August 4th, 2014 at 9:55 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.