McDonald's to sell 1,600 Latin outlets; net rises 22%
McDonald's Corp. said it will sell almost 1,600 restaurants in Latin America and the Caribbean, raising $700 million for dividends and stock buybacks urged by activist investor Bill Ackman. First-quarter profit at the world's largest restaurant chain climbed 22 percent.
The company will sell stores in Brazil, Mexico and other Latin American markets to a group led by Woods Staton, who brought McDonald's to Argentina 20 years ago. The chain is less profitable in Latin America than in the U.S. and Europe.
Ackman, who runs hedge fund Pershing Square Capital Management LP, and other investors have pressured Chief Executive Officer Jim Skinner to boost the stock price. McDonald's plans to spend at least $5.7 billion on dividends and share repurchases this year and next to increase returns.
``As they get extra cash, they should give it to shareholders,'' Giri Cherukuri, head trader at Oakbrook Investments LLC in Lisle, Illinois, said.
McDonald's said in a statement today that it bought back $1 billion worth of stock in the first quarter. It will take a second-quarter charge of $1.6 billion as a result of the Latin American sale.
Europe's biggest sales increase since 1994 lifted first- quarter net income to $762.4 million, or 62 cents a share, from $625.3 million, or 49 cents, a year earlier, McDonald's said, confirming preliminary figures from a week ago.
Shares of McDonald's dropped 62cents, or 1.3 percent, to $48.16 at 2:36 p.m. in New York Stock Exchange composite trading. They are up 8.7 percent this year, outpacing the 4.5 percent increase for the Standard & Poor's 500 index.
Latin American Sale
Staton, a native of Colombia, opened his first McDonald's restaurant in Argentina 20 years ago as a joint venture partner. He has served as president of McDonald's South Latin America division for the past year.
He will take over 1,100 Latin American and Caribbean restaurants owned by McDonald's and another 500 outlets operated by franchisees and joint venture partners, McDonald's Chief Operating Officer Ralph Alvarez told analysts.
Ackman started pressuring McDonald's in 2005 to accelerate asset sales, increase disclosure of financial information and borrow against the company's real estate to buy back shares.
As of December, New York-based Pershing Square owned 18.5 million McDonald's shares, making it the ninth-largest investor in the stock, according to Bloomberg data.
Ackman didn't respond to a telephone call and e-mails seeking comment.
More Sales
McDonald's said last year it plans to sell 2,300 restaurants globally to developmental licensees. In addition to the 1,600 Latin American units being sold, McDonald's already has agreements with operators of 100 other restaurants in Latin America. It plans to sell another 600 restaurants in Europe and Asia by the end of 2008.
By reducing spending on operating and renovating restaurants, McDonald's will focus on the larger U.S. and European markets and on China.
The new owner of the Latin American outlets will spend $100 million a year on renovations and store openings, McDonald's Chief Financial Officer Matthew Paull said on a conference call.
Selling the stores, which generate annual revenue of $1.5 billion, will cut McDonald's capital spending by $90 million a year, Paull said.
McDonald's is ``evolving our business model in a direction where we are going to be less capital intense,'' he said. ``More money will be finding its way into the pockets of our shareholders.''
Revenue Gains
Revenue in the quarter climbed 11 percent to $5.46 billion. A new McOriental burger in France and the U.K. introduction of the chicken snack buoyed sales in Europe, McDonald's largest market by revenue. A stronger coffee blend and higher-priced chicken sandwiches and salads lured new consumers.
Sales of restaurants open at least 13 months ``are kicking up due to the new products they're rolling out,'' Donald Hodges, who oversees $650 million as co-manager of the Hodges Fund in Dallas, said yesterday. ``They're doing a bang-up breakfast business with that new coffee.'' Hodges Fund owns 155,000 shares of McDonald's.
McDonald's said April 13 it earned 62 cents in the first quarter, 5 cents more than the average estimate of 14 analysts. Nine analysts, on average, predict annual per-share net income of $2.66 in a Bloomberg survey.
In the quarter, sales at units open at least 13 months increased 6.3 percent, with gains of 8 percent in Europe and 4.4 percent in the U.S. The Asia/Pacific, Middle East and Africa region had an increase of 8.5 percent.
(Published by Bloomberg, April 20, 2007)