Assessing Eminence Capital's key positions in 3Q14 (Part 4 of 14)
Eminence Capital’s position in McDonald’s
Eminence Capital started a position in McDonald’s (MCD) during 3Q14. The position accounts for 1.49% of the fund’s 3Q14 portfolio.
About McDonald’s
MCD is a fast-food restaurant. It offers limited service. It has more than 35,000 restaurants in over 100 countries. It serves 70 million customers per day.
According to IBISWorld, MCD had the largest share in the fast-food restaurant industry in 2014. Its share was 17% in the US.
Third quarter revenue decreased across all segments
MCD’s revenue decreased by 4.5% to $6,987 million—compared to $7,323 million in 3Q13. MCD reported diluted earnings per share, or EPS, of $1.09. It declined by 28% due the issue with the Chinese supplier, higher tax rates, and store closures in Ukraine and Russia.
The company reported an operating income of $2.1 billion—a 14% decline from $2.4 billion in 3Q13. Operating profit margins also declined from 33% to 29.7%, as a percentage of sales.
The global same-stores sales were down to 3.3% year-over-year, or YoY. It had a maximum decline of 9% in APMEA (Asia Pacific, Middle East and Africa).
MCD’s initiatives
In the US, MCD worked towards letting customers personalize their orders through the “Create Your Taste” concept. This allows a customer to build an order based on personal preferences. MCD is also working to give its restaurants more autonomy in the US. It means that restaurants will be able to offer food that’s locally relevant.
MCD accepted Apple Pay in all of its US restaurants. It will make purchases fast and easy for customers using the iPhone 6, the iPhone 6 Plus, and the Apple Watch.
On November 12, MCD announced its plan to enter a new market—Kazakhstan—in 2015. Kazakhstan is McDonald’s 120th global market.
Quarterly dividends
The company raised its quarterly dividends by 5%. It distributed $0.85 per share to its investors. MCD returned a total of $4.6 billion to its shareholders during the first three quarters of 2014. It had a three-year cash return target of $18–$20 billion.
To learn more about MCD’s third quarter earnings, read Why McDonald’s net profit and margins declined 3Q14.
Eminence Capital’s other 3Q14 positions
During 3Q14, Eminence Capital also initiated new positions in GNC Holdings (GNC), Apple Inc. (AAPL), Cognizant Technology Solutions (CTSH), and Zimmer Holdings Inc. (ZMH). It raised positions in TIBCO Software Inc. (TIBX) and CBS Outdoor Americas Inc. (CBSO). It sold its position in Ralph Lauren Corp. (RL). It decreased positions in National Oilwell Varco, Inc. (NOV), Dollar General Corp (DG), Cadence Design Systems, Inc. (CDNS), Kar Auction Services, Inc. (KAR), and VCA Antech, Inc. (WOOF).