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18/09/02 . DAVE CARPENTER, AP Business Writer . Associated Press . USA
McDonald's CEO defends turnaround plan as stock sinks
CHICAGO - McDonald's Corp.'s embattled chief executive defended his company's plan for reviving lackluster U.S. sales Wednesday after analysts panned it and the stock sank to yet another seven-year low.
With more investors urging McDonald's to shake up top management, chairman and CEO Jack Greenberg said the company is "on the verge of a national value campaign in the U.S. that will help us reclaim our industry leadership."
"Let me assure you that our brand and our worldwide system are strong, nd so are the plans to turn our performance around," Greenberg said in a brief statement.
Pressure on McDonald's to end a two-year slump intensified after the uburban Oak Brook-based company lowered its profit forecast Tuesday in the wake of summer sales that were lower than a year earlier in restaurants open at least a year.
A day after a 13 percent drop that marked its worst since the 1987 stock market crash and second-biggest ever, McDonald's shares fell another 75 cents, or 4 percent, to close at dlrs 18.16 Wednesday on the New York Stock Exchange.
For the second straight day, it was one of the most active trading days in McDonald's history, with 19.5 million shares bought and sold.
Securities brokerages cut their outlooks or downgraded McDonald's, and several analysts said they saw little hope of improvement in the near future.
"Over the last 10 years, we have never witnessed so much skepticism surrounding the company," said Howard Penney in a report for SunTrust Robinson Humphrey. "With no significant changes made to senior management business philosophy, we feel it is unlikely that the company will turn around any time soon."
McDonald's stock price has lost about 70 percent of its value since Greenberg was named to the top job in 1998. A shrunken economy, tougher challenges from competitors, and beef safety scares abroad all have contributed to the slide, along with increased complaints about poor service.
The company is touting its plans to introduce dlrs 1 menu items this fall — a move already made by Wendy's and Burger King — as key to revving up its U.S. business, particularly since test studies show customers spending the same amount on meals as without the dollar menu.
It also intends to speed up service, invest as much as dlrs 400 million in revamping U.S. restaurants next year and continue to tweak its menu, adding more desserts, premium salads and other items.
But many industry experts remain skeptical. In a research note for J.P. Morgan, analyst John Ivankoe said the company's "strategy remains uncertain and results will likely remain weak."
Others see the decline as troubling but temporary.
"Despite the somber news ... the prognosis for improved U.S. sales trends remains encouraging," said Merrill Lynch analyst Peter Oakes in a report for investors. "We fail to detect any structural barrier preventing the company from eventually regaining past glory."
However, he added, when it comes to management strategy, "a greater sense of urgency would go a long ways."