OUR TAKE

McDonald's Smells Good

	Email this page Format for printing Reuse/Reprint
	Related Links McDonald's Slows Down
	Discussion Boards The Motley Fool Take

By David Gardner and Tom Gardner
May 5, 2003

Did somebody say McDonald's?

Shares of the fast-food giant jumped to a three-month high last week after it posted a nearly 30% increase in profits for the first quarter. McDonald's (NYSE: MCD) is still battling sluggish sales, but it benefited from a weaker dollar overseas.

David: First off, this is coming off a December period that culminated in McDonald's first quarterly loss in its 38 years as a public company. Yet, can you keep a good business down? With more than 31,000 outlets around the world, and as one of the 30 Dow Jones Industrials, this company was due for a turnaround.

Tom: And things are looking up since Jack Greenberg stepped down as CEO.

David: Yep. Jack Greenberg ran the company during the 1990s and was criticized for his overexpansion of McDonald's stores and menu items -- trying to be everything to everyone. As one Mickey D's franchisee said, Greenberg had "the focus of an octopus: How many arms can we have?" His big ambitions didn't translate into greatly improved revenues and so Greenberg is now gone.

Tom: But the new CEO is taking a different approach.

David: Jim Cantalupo came out of retirement to take over as the CEO, and he's focusing on better service and better food. The company will build far fewer new stores this year than previously planned, and Cantalupo has a low-key style. Rather than issue a smarmy, self-satisfied quotation about the successful turnaround quarter, he said, "I certainly am not satisfied with our results this quarter." You go, Jim.

Tom: So, what about the stock?

David: Well, its shares have badly underperformed the market over the last three, five, and 10 years. So, it's been a long time since McDonald's shareholders have been rewarded. But I like this stock at $17 and change. There are significant challenges, but you're buying a premiere brand name during an out-of-favor period, piloted by a turnaround CEO. So, I'd buy McDonald's here.

The Motley Fool is investors writing for investors. To view a writer's current stock holdings, check out his or her online personal profile.