When McDonald's (NYSE:MCD) reported its strong quarter fourth quarter last night -- and its first full year under a companywide revitalization plan -- it also announced that Fred Turner would step down from the board of directors.
In 48 years with the company, Turner, now 71, rose from a "grill man extraordinaire" in 1956 to president in 1968 to CEO and chairman in 1977. He's best-known as the man who, in 1958, wrote the original operating manual, internally referred to as "the bible." Last year, he was brought out of retirement to help the company improve the taste of its food. By all indications, he is leaving its customers and shareholders with a better taste in their mouths.
CEO Jim Cantalupo, who joined McDonald's out of retirement in January, has not missed a beat since launching the company on his "Plan to Win," initiating its very first global brand directive, "I'm Lovin' It." With the stock up some 60% (including dividends, which have been raised 70%) since early 2003, it's the shareholders who are lovin' it now.
Cantalupo's notion of "Growing by being better" clearly delivered. In constant currencies, last quarter's revenue increased 9% and same-store sales (the industry's most watched number) increased 7.4%. Even more important to shareholders, operating margins increased and earnings came in at $0.10 a share vs. a loss of $0.27 last year.
At the same time, McDonald's has cut capital expenditures to pay down debt, increase its dividend, and repurchase stock. The reduced capital spending continues through 2004, though the company will still engage in capital spending to the tune of $1.6 billion. Free cash flow will once again be used to repurchase stock and reduce debt by up to $700 million. With total debt of $9 billion, and a debt-to-equity ratio over 80%, strengthening the balance sheet seems particularly prudent.
The company maintains that its long-term goals are to grow revenue at 3% to 5% annually and operating income by 6%-7%, as well as maintain a return on invested capital "in the high teens." McDonald's is a great brand, a great company, and is clearly making sound decisions.
All that being said, at 22 times earnings, another year of rampant stock-price growth is not likely: McDonald's sells at a premium to peers Yum! Brands (NYSE:YUM), Wendy's (NYSE:WEN), and Jack in the Box (NYSE:JBX). So, yes, the huge move may indeed be over; however, as the company recovers, for patient investors, that premium may yet be earned.
Who was the first to portray Ronald McDonald? That was Willard Scott in 1963. In 1955, when Ray Kroc opened his first corporate restaurant, he could never have guessed that his first-day receipts of $366.12 would eventually allow the family to bequeath $60 million to Ronald McDonald House Charities in Dec. 2003.
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W.D. Crotty owns stock in McDonald's and Yum! Brands.
