McDonald’s said it would take a $235 million charge in the second quarter of fiscal year 2016, related to its planned sale of 4,00 restaurants to franchisees and some costs linked to shifting its headquarters to downtown Chicago.
According to a company statement, the charge will adversely affect June quarter earnings by 20 cents per share.
The fast food giant, which had summarized the plans a year ago as part of a financial advance aimed to appeal to investors, has targeted $500 million in general and administrative savings, mainly to be filled by the end of next year.
McDonald’s previously said that after the sales, 93 percent of its locations would be held by franchisees. In addition, the company intends to increase that figure to 95 percent.
Market players generally approve the move toward more franchised sections as it provides companies a steadier cash flow from royalties, licensing and property leases. Moreover, they often have a higher profit margin while averting the uncertainty of labor and commodity costs.
On Friday, shares of McDonald’s climbed 0.07 percent to $121 in pre-market trading.
The strengths of the company include its stable stock price performance, surge in net income, considerable return on equity, growing profit margins and good cash flow from operations. Market analysts believe that its strengths outweigh the fact that the fast food giant has had largely high debt management risk by most methods evaluated.
McDonald’s Stock Performance
Shares of McDonald’s hit $121.31, up 0.07 percent from its open. The stock has performed at 4.22 percent on a year to date basis. Breaking down the figure, it has performed 0.81 percent for the week, -0.66 percent for the month, -4.50 percent over the past quarter, 6.46 percent for the last half year, and 29.74 percent for the last year.
McDonald’s Corp. has an earnings per share growth of -0.60 percent this year, and its trailing 12 month earnings per share is 5.19. Analaysts project McDonald’s to grow 11.51 percent next year.
The company’s return on assets is 13.80 percent, indicating how profitable McDonald’s is relative to its total assets. On the other hand, the fast food giant’s return on equity is 64.60 percent, gauging its profitability and revealing how much profit it create with the shareholders’ money. The company also has a return on investment of 16.40 percent.
McDonald’s to Narrow Bidders for China Franchise
McDonald’s picked bidders, including China Cinda Asset Management Co., the country’s second largest bad-loan manager, and dairy manufacturer Beijing Sanyuan Foods Co. to make bidding proposals for its operations in China and Hong Kong.
The fast food giant is selling 20 year mass franchise rights in China and Hong Kong, which could bring in nearly $2 billion.
McDonald’s is remodeling its ownership structure in Asia as it seeks an international turnaround plan put in place after CEO Steve Easterbrook took over last year. The company said in March it is looking for franchise affiliates in mainland China, Hong Kong and South Korea to invest new capital and facilitate local decision making.
“Refranchising has been a big trend in the last two years, and it just kind of continues that trend,” an analyst said. “You shift a lot of the operational risk onto the franchisee.”
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