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Is Slowing Growth the Best Option for McDonald's Future?

McDonalds-Beijing
Source: courtesy of McDonald's Corp.
Before the markets opened Friday morning, McDonald’s Corp. (NYSE: MCD) reported its fourth-quarter financials as $1.13 in earnings per share (EPS) on $6.57 billion in revenue. That compared to Thomson Reuters consensus estimates of $1.22 in EPS and revenue of $6.68 billion. In the fourth quarter from the previous year, the fast-food giant posted EPS of $1.40 and $7.09 billion in revenue.

For the fourth quarter, global comparable sales decreased 0.9%, reflecting negative guest traffic in all major segments. Consolidated revenues decreased by 7% and consolidated operating income decreased by 20% due to weak operating performance in the United States and supplier issues in the Asia Pacific Middle East and Africa group (APMEA).

In the previous year, McDonald’s announced financial goals and targets for the three-year period of 2014 to 2016. It planned to return $18 billion to $20 billion to shareholders through a combination of dividends and share repurchases, as well as refranchising at least 1,500 restaurants and reallocate resources to higher growth initiatives. In the fourth quarter, the company returned $1.8 billion to shareholders, and a total of $6.4 billion on the year.

The golden arches will have its lowest capital budget in over five years for the 2015 full year at $2 billion. Specifically, McDonald’s is looking to save by having fewer openings in its more challenging markets.

ALSO READ: 10 Fired McDonald’s Workers File Civil Rights Lawsuit

Slowing its growth may be the best option for the fast-food giant in the wake of the organic and natural food movement. McDonald’s has been a loser since this wave caught on. Now might be the time for McDonald’s to circle wagons, check its expansion before the chain overextends itself and reevaluate its menu options for a growing health-conscious customer base. 24/7 Wall St has included more on the 2015 outlook in our bullish and bearish evaluation of McDonald’s.

Don Thompson, McDonald’s president and CEO, commented on the fourth quarter:

2014 was a challenging year for McDonald’s around the world. Our results declined as unforeseen events and weak operating performance pressured results in each of our geographic segments. As we begin 2015, we are taking decisive action to regain momentum in sales, guest counts and market share. This involves driving foundational improvements in our major markets and continuing our recovery efforts in markets affected by unusual events.

Shares of McDonald’s closed Thursday up 0.6% at $90.89. After the earnings report was released, shares were up 1% at $92.04 in premarket trading. The company’s stock has a consensus analyst price target of $96.29 and a 52-week trading range of $87.62 to $103.78.

ALSO READ: Starbucks: Can Everybody Make Money on Fast Food?

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