McDonald's Has Forecast Its Last Loss
Diane Hess
01/16/03 - 03:03 PM EST
After forecasting its first quarterly loss in 47 years, fast-food giant
McDonald's (MCD Quote - Cramer on MCD - Stock Picks) said it's getting out of the business of short-term financial forecasts.
Instead, the restaurant operator will provide investors an outlook for the key components of earnings. "This approach will give a clear assessment of our business," said McDonald's CEO Jim Cantalupo in his first public address to the financial community since he took over this month.
The decision follows a similar move by soft-drink manufacturer
Coca-Cola (KO Quote - Cramer on KO - Stock Picks) in December. Previously,
Gillette (G Quote - Cramer on G - Stock Picks) said in January 2001 that it would no longer offer short-term earnings estimates. Both said such estimates crimped their ability to plan for the long term.
The announcement by McDonald's might seem slightly less pious in light of the direction in which its business has been headed.
Back in December, McDonald's said it would lose 5 cents to 6 cents a share in the fourth quarter, including charges to restructure certain markets. Excluding charges, the company said it would earn 25 cents to 26 cents a share, below estimates at the time. The stock fell 8% on the day of the warning.
Grimace
Shares of McDonald's were lately down 5.2% to $15.82, as investors also reacted to news that it will not make any changes to its controversial dollar menu, which has set off a price war in the industry.
"Everyday value has always been important to the industry," said Cantalupo on a conference call, adding that he will continue to evaluate whether premium offerings like the Big 'N Tasty burger belong on it. "We are happy with the dollar menu, but not married to any item on it."
Back in October, McDonald's introduced the dollar menu as a way to goose slumping sales. The decision pressured other rivals in the fast-food industry to lower prices on some of their most popular items. Most recently, Burger King put its flagship Whopper on sale for 99 cents in January.
Many analysts have raised concerns about the strategy's impact on profit margins. In fact, McDonald's said in December that its fourth-quarter margins would come in below year-ago levels.
Right now, CEO Cantalupo seems to think the company's biggest issue is fixing its restaurants. In the past year, McDonald's has lost customers as a result of poor service and lack of cleanliness at its chains.
"Some have suggested we need dramatic change," said Cantalupo. "Clean bathrooms and hot food served quickly would be changes. The foundation of our restaurants is not what it used to be."
Cantalupo said he will continue to review McDonald's operations and close low-volume restaurants. The company will also abandon a long-term technology project that would have cost more than $1 billion over the period of its development. "This is not the best use of our capital right now," said Cantalupo.
The CEO also addressed a question about whether McDonald's is a growth entity. Some have said it should be considered a mature business. "Right now we need to fix the basics. I do want to grow, but not just in new units. I am confident growth will come in existing restaurants as well," he said.
