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MCDONALD’S IS DOWNGRADED

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MCDONALD’S IS DOWNGRADED

May 5 2015, 08.20am GMT

STOCK.com

McDonald’s Corp. announced a turnaround plan on Monday, but the restaurant group seemed to have missed the main ingredient as no mention was made of its food.

Announcements were made by McDonald’s Corp. (NYSE: MCD) on Monday on how it plans to “reset & turnaround”. But the company seemed to have missed the main ingredient for any restaurant business as it failed to talk about its food.

The fast-food chain, which has been battling complaints regarding their menu that is too large and out of date, claimed that there will be a bigger focus on the customer; however, only from an organizational and ownership change perspective.

Steve Easterbrook, chief executive said a month ago that he commits to making the company a modern and progressive burger company that will deliver a contemporary experience to the customer. However, many were wishing to hear about his plan to win, emulating the restructuring that was reported in April 2003, which assisted with bringing in the best 10 years of McDonald’s history, and which also saw a nearly sevenfold rise in the price of its stock.

However, the 3 priorities that Easterbrook raised did not sound contemporary nor progressive. The first point was to drive operational growth, the second was to bring back excitement to the McDonalds brand and the third was to unlock financial value.

Stephen Anderson, an analyst from Miller Tabak said that the plan announced by Easterbrook sounded less like a “Plan to Win” - Version 2, which will give a clear indication of how to better the business, but rather like a “garden-variety” of restructuring.

The company’s then chief executive in April 2013, Jim Cantalupo announced that the priorities for the company were firstly to attract more customers, secondly to get the customers who already buy to visit more often, thirdly to build brand loyalty and lastly to increase productivity.

On Monday during midday trade, the company’s stock fell 0.2% and has over the last 12 months lost 3.8%. Stock prices have not changed much from where they were 3 years ago. In comparison, the advance in the Dow over the last year has been 9.5% and almost 40% over the past 3 years.

Anderson believes that investors were rather seeking a bottom-up approach to turning the business around including a plan to reduce the waiting times for customers, decreasing the size of its menu and plans on how to improve on its supply chain challenges, which recently saw issues relating to the quality of its meat.

Added to this, on Monday, Standard & Poor’s downgraded the company’s corporate credit rating from A to A-minus. Added to this, S&P stated that McDonald’s plans to return $8.5 billion in cash to shareholders in 2015 are a negative for the company’s credit metrics.

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