Big wake-up call for McDonald's: Recent troubles hit stock

Big wake-up call for McDonald's: Recent troubles hit stock

August 27, 2001 National Post (formerly The Financial Post) by 
Deborah Cohen

CHICAGO - The hamburgers are supposed to be served quickly at McDonald's Corp., but change itself may be coming too slowly at the company that launched the fast-food industry.

The company, which has nearly 29,000 restaurants worldwide and US$40-billion in annual system-wide sales, is facing a spate of woes, including the worsening global economy, mad cow disease in Europe, a strong U.S. dollar, increasingly poor marks in service and most recently -- fraud.

McDonald's fortunes began to worsen last year, just as chief executive Jack Greenberg was beginning to shake things up. In the three most recent quarters, McDonald's, a steady earnings performer among large-cap stocks, saw its profit fall below year-earlier levels. Full-year earnings for 2001 are expected to come in at US$1.39 a share, down from US$1.46 in 2000, according to research firm First Call/Thomson Financial. The question on everyone's mind, from Wall Street analysts to long-time operators, is how the company will execute a turnaround. 'McDonald's has received the biggest wake-up call of its life,' said Irwin Kruger, a Manhattan franchisee who has run McDonald's restaurants for 30 years.

This week, the U.S. government disclosed the company, based in Oak Brook, Ill., was an unwitting participant in a scam that bilked millions of dollars in prize winnings from customers. The scandal comes on the heels of a controversy that led to lawsuits over the use of beef fat in its famous french fries.

While news of the scam may shock the public, investors have been expressing doubts for some time. By March, they had pushed McDonald's shares down to US$24.75, their lowest level in three years. The stock, which closed Friday at US$30.49 on the New York Stock Exchange, has fallen 10% this year, and trails the Dow Jones industrial average, of which it is a member, by about 7%.

'They've established a powerful brand, but getting to the next level is going to be hard,' said Robert Goldin, executive vice-president of consulting firm Technomic Inc. 'I don't know what I would do if I were in Mr. Greenberg's shoes.'

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