McDonald’s Corp. (MCD) finds itself facing yet another controversy related to food safety. A piece of vinyl was reportedly found in a Chicken McNugget recently at one of the company’s outlets in Aomori, Japan.
Following the discovery, McDonald's immediately stalled the sales of the nuggets that were produced at its Thai plants. The company stated that the contaminated nugget has been sent to the company’s headquarters in Tokyo for further investigation.
McDonald’s Japan has been procuring its ingredients from three plants in Thailand since Jul 2014 after its old supplier Shanghai Husi Food Co – unit of U.S.-based OSI Group LLC – was accused of reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. (Read: Food-Safety Concerns Threaten Yum! & McDonald's China Sales).
Since then, overall sales of McDonald’s, especially its Chinese business, have been declining continuously. Comps in the third quarter declined 9.9% year over year in the Asia/Pacific, Middle East and Africa (APMEA) region which includes China, Japan and certain other markets. Also, comps in the region declined 4.2% and 2.3% in Oct and Nov 2014, respectively.
However, this is not the sole issue hampering the company. In Dec 2014, McDonald's had to stop selling medium and large servings of french fries due a scarcity of potatoes as a result of a labor dispute at U.S. West Coast ports.
Moreover, the company is already experiencing dwindling sales at its other major operating regions. Europe is posting weak comps over the past few quarters owing to the temporary closure of restaurants as a result of tension between Moscow and Washington. Meanwhile, the domestic market has not been able to post positive comps since Oct 2013 due to heightened competition and a few unwise decisions that have slowed down service.
One cannot deny the fact that this Zacks Rank #4 (Sell) company is consistently trying to regain consumer confidence and revive sales in all markets through menu innovation and promotions. However, per a few analysts, McDonald's situation is not expected to improve in the near-term due to a slew of demographic and economic factors. We remain concerned that if any other adversity occurs, it might slow the company’s sales further.
Some better-ranked stocks in the restaurant industry include Bob Evans Farms, Inc. (BOBE), BJ's Restaurants, Inc. (BJRI) and Brinker International, Inc. (EAT). While BJ's Restaurants sports a Rank #1 (Strong Buy), Bob Evans Farms and Brinker International carry a Zacks Rank #2 (Buy).
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