It was a sad day for McDonald's shareholders -- and those who follow good business in general -- as the company's chairman and CEO, Jim Cantalupo, passed away after a heart attack. Cantalupo, only 60, was largely credited for McDonald's recent turnaround and will be sorely missed. For more, read the full story below.
In today's Motley Fool Take:
- Mickey D's Unhappy Day
- Discussion Board of the Day: McDonald's
- Eli Lilly's Drug Dependency
- Shameless Plug: Motley Fool Income Investor
- 3M: Money, Margins, Magnificent
- Quote of Note
- More on Fool.com Today
M i ckey D's Unhappy Day
By Alyce Lomax (TMF Lomax)
McDonald's
When Cantalupo retook the helm in Jan. 2003 after retiring from his leadership position for McDonald's International in 2002, McDonald's was struggling. For many, it seemed the death knell of a company that had lost its appeal.
Since then, it's been nearly impossible to keep up with all the strategic moves the company has made to return to viability. The "I'm Lovin' It" marketing campaign, Wi-Fi, and even musical downloads are helping it appeal to hipper, younger consumers and technophiles. Meanwhile, in what has likely been the bigger success, it has brought a more healthy angle to its fast-food appeal, with a range of initiatives including adult Happy Meals and serious menu changes, like the addition of white meat nuggets and the subtraction of "Supersized" fries.
I could go on, but you get the picture. Cantalupo's success in both getting back to basics and addressing important trends that could have made McDonald's obsolete when facing hungry competitors like Wendy's
Most impressive of all, Jim Cantalupo forced many a naysayer to eat crow. Some pundits said he certainly couldn't transform McDonald's anytime soon, and some suspected maybe McDonald's was too far gone -- in reality, the transition took less than a year to pull off. If you'd like a recap on the remarkable doings of Cantalupo, rewind to last October, when Whitney Tilson nominated him CEO of the Year.
After today's sad news, McDonald's wasted no time promoting President and Chief Operating Officer Charlie Bell to the post. (In an interesting side note, Charlie Bell is one of those rare executives who started at the bottom of the ladder -- as a teenager, he became the youngest Mickey D's manager ever, at the tender age of 19.)
It may be tempting, but investors shouldn't give in to the gloom. While most stockholders face similar random risks, McDonald's investors may be in better shape than many other companies' shareholders would be under similar circumstances. Luckily, Cantalupo put the wheels of change into motion fast, and it's been clear what's been working for the fast-food giant. As long as the company continues to follow the course Cantalupo has charted, chances are investors will still find a lot to love in McDonald's.
Alyce Lomax does not own shares of any of the companies mentioned.
Di scussion Board of the Day: McDonald's
Can McDonald's keep customers "lovin' it" without Cantalupo? Is the fast-food chain's recent success a clear blueprint for McDonald's management? Talk to other Fools about the tragedy on the McDonald's discussion board. Only on Fool.com.
Eli Lilly's Drug Dependency
By Alyce Lomax (TMF Lomax)
Eli Lilly
The drug maker warned about the "substantial" charge to this quarter's earnings related to its acquisition of Applied Molecular Evolution last quarter. Including the $362.3 million charge, earnings came in at $400.4 million, or $0.37 per share, as compared to $407 million, or $0.38 per share, in the same quarter last year.
However, if you take out the charge, Eli Lilly's earnings were $762.7 million, or $0.70 per share, beating analysts' consensus expectation for earnings of $0.66 per share. Revenues increased 17% to $3.38 billion, exceeding analysts' expectations for sales of $3.23 billion.
Lots of its revenue growth was attributed to established, major products, like schizophrenia drug Zyprexa, osteoporosis med Evista, and cancer drug Gemzar. Zyprexa is particularly important because it represented one-third of revenues last year.
However, much has been made of the competitive forces facing Zyprexa. This quarter, Zyprexa's sales were up 15%, related to several variables including buying from institutions. At the same time, the drug had a lower prescription volume in retail, due to what the company called "increased competitive pressures." Other schizophrenia drugs include Johnson & Johnson's
Eli Lilly said that it still expects regulatory approval of long-awaited depression drug Cymbalta so it can spring a summer launch. There's lots hinged on Cymbalta, with expectations that it could be Eli Lilly's newest blockbuster. Recent flak about antidepressants' relationship with suicide -- including a February suicide that took place during Cymbalta trials -- could throw a wrench into the works, but in Eli Lilly's conference call (courtesy of CCBN StreetEvents), the company claimed little regulatory effect from the controversy.
With expectations that Cymbalta could pull in about $2 billion in sales, it would do a lot to fire up earnings growth as well as offset loss of revenues from other products. It may be hard to ignore the recent FDA scrutiny of antidepressants as well as the media coverage linking Eli Lilly's promising drug to such controversy. The company may have a robust pipeline, but there are still industry and competitive considerations that put some risk into the picture.
Alyce Lomax does not own shares of any of the companies mentioned.
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3M: Money, Margins, Magnificent
By W.D. Crotty
Diversified products company 3M
In the first quarter, net income shot up an impressive 29% on a 14.4% year-over-year jump in sales. Indeed, aside from some lukewarm comments on the global recovery from the CEO, those looking for bad news will have to do some digging.
U.S. unit sales volume, which barely rose in 2003, was up an impressive 4%. Free cash flow increased 21.7% to $0.98 a share, while operating margins remained strong at 22.6%. Compared to the first quarter last year, both short-term borrowing and long-term debt declined, while cash rose to where it exceeds long-term debt. Bravo!
Just as important, 3M shares the wealth with its owners. A current 1.7% dividend yield returns more than $1.1 billion annually to shareholders, and the company plans to repurchase $1.5 billion of its shares to offset dilution from stock options. Did I mention that the company upped its earnings outlook for 2004 by $0.08 to $3.60-$3.70 a share?
As for the competition, Avery Dennison
Annualizing this quarter's results pegs 3M at around 21 times free cash flow. That's not exactly cheap, but 3M is not exactly your average company. Over the past 10 years, the company has shrunk its share base while improving its operating margins and return on total capital. For perspective, that's something even IBM
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
Qu ote of Note
"Imagination is the beginning of creation. You imagine what you desire, you will what you imagine and at last you create what you will." -- George Bernard Shaw
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For a list of all our stories from today, see our Today's Headlines page.