McDonald’s Revamps Leadership Into Four Units to Boost Sales

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Four Reasons McDonald's Needs a Turnaround Plan

McDonald’s Corp. Chief Executive Officer Steve Easterbrook is restructuring the restaurant chain into four segments, saying the key to snapping its sales slump is improving operations.

The company also will shift more restaurants to independent owners, cut costs and return cash to shareholders, Easterbrook said Monday.

McDonald’s is trying to stem an exodus of customers who are seeking higher-quality food at chains like Chipotle or cheaper fare at traditional rivals such as Burger King and Wendy’s. Easterbrook, a company veteran, took over McDonald’s in March after the company’s worst sales slump in more than a decade forced his predecessor from the job.

“Our turnaround will be grounded in operations excellence and running great restaurants,” Easterbrook said in a video presentation.

Investors, though, weren’t sold that the plans presented Monday will be enough to revive the company’s prospects. McDonald’s shares fell 0.8 percent to $97.03 at 9:38 a.m. in New York.

Investors may have been looking for an update on how much debt the company is willing to take on as it returns cash to shareholders, said Will Slabaugh, an analyst at Stephens Inc.

“That was something that was missing,” he said. “They haven’t touched on that quite yet.”

Cash Return

McDonald’s said today it plans to return as much as $9 billion in cash to shareholders this year through dividends and stock buybacks. The company also plans to reach the top end of its three-year target of returning as much as $20 billion by the end of next year.

Despite the lack of detail on debt, Slabaugh said that the company still appears to be “headed in the right direction.”

In another move that may help McDonald’s bottom line, Easterbrook said McDonald’s will shift more of its restaurants to independent owners. The company plans to have 90 percent of its locations franchised globally by 2018, up from 81 percent today. Franchised locations are typically more profitable because the company bears less of the cost of operations.

Mike Andres will continue to lead the company’s U.S. segment. Doug Goare, currently in charge of McDonald’s Europe, will be president of the new International Lead Markets, which comprises Australia, Canada, France, the U.K. and Germany.

High-Growth Markets

Dave Hoffmann, president of McDonald’s Asia-Pacific, Middle East and Africa unit, which it calls APMEA, will lead the High-Growth Markets group. That segment includes China, Italy, Poland and Russia, among others. Ian Borden, currently chief financial officer of the APMEA unit, will be president of the Foundational Markets group, which includes about 100 countries.

The reorganization also will entail cutting $300 million in annual general and administrative costs by the end of 2017.

“Having clusters of similar markets led by one person will create urgency and speed,” Easterbrook said. “It will spread insight faster, it will enable quick decision making, it will eliminate mistakes, reduce costs and unlock growth.”

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