For McDonald's Corp. (MCD), the stepping down of its CEO, Don Thompson – who was in office for almost three challenging years – might just be a blessing in disguise. Shares of the Oak Brook, IL-based company shot up more than 5% after Steve Easterbrook was named as the new CEO on Jan 28. He will take office effective Mar 1.
In the recent times, the company has been posting dismal results, with its fourth-quarter comps declining 0.9%. In fact, comps in all the company’s operating regions declined. The company has been plagued by food safety scandals in various regions around the world.
In the Asia/Pacific, Middle East and Africa region, the issues with Shanghai Husi Food Co – a supplier of McDonald’s which allegedly reused meat that had fallen on the factory floor and mixed fresh and expired meat – sent comps plummeting. Some of the company’s most important markets like China and Japan were affected by this scandal.
Meanwhile, other issues like vinyl reportedly being found in McNugget dented the company’s efforts to gain consumer confidence to some extent. Further, the company was forced to limit its French fries servings throughout Japan after labor related disputes in the U.S. delayed shipments.
So will the new CEO be able to bail the company out of this crisis?
In our view, the quick service giant needs to improve traffic substantially to survive the intense competition in the fast food industry. Menu innovation and promotions, and adapting to the changing tastes of the consumers should help. Also, the company needs to focus on just a few menu items and provide healthier options and fresh ingredients like Chipotle Mexican Grill, Inc. (CMG).
McDonald's is trying to boost revenues by introducing variations of items already on its menu instead of introducing new ones. Further, we are encouraged by the company’s latest “Create Your Taste” program that allows customers to create burgers of their own choice. We believe that such programs will help the quick service restaurant chain to cater to customers looking to customize their menu.
In our view, Easterbrook, who held the post of Senior Executive Vice President and Chief Brand Officer as well as the president of McDonald's Europe, should be able to reinvigorate the struggling company. He initiated many of the company’s marketing, menu innovation and digital initiatives, previously, and has the expertise to bail out McDonald's.
McDonald's currently has a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the restaurant industry are Bloomin' Brands, Inc. (BLMN) and Cracker Barrel Old Country Store, Inc. (CBRL). Both these stocks carry a Zacks Rank #2 (Buy).
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