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McDonald's Reiterates Growth Plans

Zacks Equity Research

McDonald's Corp. (MCD) held its investor day recently at Oak Brook, Ill. where it reiterated its long-term plans and provided a brief outlook for 2014. The company also affirmed its commitment to its strategic plan – the Plan to Win – that calls for optimizing the menu, modernizing customer experience and broadening accessibility to McDonald's brand.

Fiscal 2014 Guidance

In 2014, the company plans capital spending in the range of $2.9 - $3.0 billion for opening 1,500 - 1,600 new restaurants and remodeling 1,000 restaurants.

The company expects commodity costs to increase 1.0% to 2.0% in the United States and 1.5% to 2.5% in Europe. As a result of higher employee expenses and costs associated with its owner/operator convention and Winter Olympic sponsorship, the company expects general and administrative costs to increase about $200 million in 2014.

Long Term Expectations Reiterated

McDonald's continues to expect system wide sales growth in the range of 3% to 5% and operating income growth in the band of 6% to 7% for the long-term. Return on incremental invested capital is likely to be in the high teens over the long term.

Growth Initiatives

McDonald's is the world's biggest hamburger chain that has struggled to boost its sales since the past few quarters. To boost decelerated comps in recent times, McDonald’s remains committed to product innovation, offering value menu, extending McCafe premium beverage line as well as a variety of core items and execution of stronger marketing messages.

In Sep 2013, the company added Pumpkin Spice Latte to its menu. At the end of Oct 2013, the company announced that in collaboration with Kraft Foods Group Inc. (KRFT), it is working to test the sale of McCafe bagged coffee at retail locations such as supermarkets in 2014.

Like McDonald's, other players in the industry, including Starbucks Corp. (SBUX) and Dunkin' Brands Group, Inc. (DNKN), are also trying to diversify beyond there traditional food/beverage offerings. In Sep 2013, Starbucks improvised its sandwiches and introduced new salads and baked goods to attract more customers in the afternoon and evening hours. Earlier this month, Dunkin' Brands also unveiled the new Spicy Smoked Sausage Breakfast Sandwich, which features a spicy split sausage link with egg and American cheese, served oven-toasted on an English muffin.

With most industry players trying to innovate and grab the larger share of the pie, we will have to wait and see as to who emerges the winner. Currently, McDonald's Starbucks and Dunkin' Brands all have a Zacks Rank #3 (Hold).


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