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McDonald's stock jumps on results, plan

Bruce Horovitz
USA TODAY
A turnaround plan for McDonald's will be announced in just 10 days.

McDonald's new CEO shocked analysts and investors on Wednesday by announcing that he would reveal the first steps of a turnaround plan for the struggling fast-food chain in just 10 days.

That's the key reason that McDonald's stock was up more than 2% Wednesday afternoon, as CEO Steve Easterbrook -- in office for only seven weeks -- told analysts that change was urgent -- and imminent.

"As a retail business we must be more customer-centric," Easterbrook said.

Easterbrook refused to divulge on Wednesday any details of the turnaround plan. But he did note, "We're challenging conventional thinking on multiple fronts."

For McDonald's, a turnaround couldn't come soon enough. For nearly two years, the chain has seen its stock decline even as its same-store sales, particularly in the U.S. market, have been falling. The company has been playing catch-up to much of the fast-food industry, trying to improve the quality of its food and mend its tattered brand image.

Industry analysts say that change is way, overdue -- particularly in the quality of McDonald's menu offerings.

"McDonald's needs products and marketing geared around health and wellness," says Jack Russo, analyst at Edward Jones. "If you look at Chipotle and Panera, it's all about organic and natural. McDonald's can still be McDonald's and do that."

The world's biggest fast-food company said it had a profit of 84 cents per share. Earnings were $1.10 per share, adjusted for non-recurring costs. That beat Wall Street expectations, which were $1.05 per share.

Meanwhile, revenue for the quarter was $5.96 billion — which fell short of Wall Street expectations, at $6.02 billion. The company also said that it will close 350 additional under-performing restaurants -- primarily in the U.S., Japan and China. This is in addition to the 350 global restaurant closings originally planned for 2015, previously announced in January.

But the big news from the embattled company was Easterbrook's turnaround plan.

At least one analyst, however, stated serious doubts about the plan being any kind of "road map" to a return of McDonald's to global, fast-food dominance. "I worry that they may be getting too ahead of themselves," said Joshua Raymond, chief market strategist at City Index. "The turnaround of a huge company with a large footprint in a highly competitive market is not a simple task."

First quarter sales fell 2.3% on a global comparative basis in the first set of quarterly results for the firm since Easterbrook became CEO. The company faulted negative guest traffic in all major segments. Consolidated operating income decreased 28% (20% in constant currencies) due to weaker operating performance and $195 million of strategic charges related to restaurant closings and other management actions.

In the U.S., first quarter comparable sales decreased 2.6% reflecting negative sales and guest traffic as the segment's product and promotional offers did not overcome the competitive activity. U.S. operating income for the quarter declined 11%, reflecting weak sales results and the impact of restructuring and restaurant closing charges.

Asked why he picked May 4 to announce the beginning of the turnaround plans, Easterbrook noted that same week McDonald's top executives from around the world will be gathered at the company's headquarters in Oak Brook. But one industry analyst says with a wink that there might be another reason.

May 4th, after all, is "Star Wars Day," a promotional celebration long-planned by Disney, says Mark Kalinowski, analyst at Janney Montgomery Scott, in a note to investors. Now, of course, McDonald's has big plans for that same day. And, as Kalinowski notes, "May the 4th be with them."

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