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McDonald’s new CEO well-suited to take over from ousted Easterbrook

R.J. Hottovy, CFA  |  05 Nov 2019Text size  Decrease  Increase  |  
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The sudden departure of McDonald's (NYSE: MCD) chief executive Steve Easterbrook is a surprise, but we ultimately believe newly appointed CEO Chris Kempczinski is the best positioned executive to lead McDonald's in future.

Easterbrook, who left McDonald's "following the board's determination that he violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee," had been instrumental in the company's turnaround efforts since 2015.

This includes a successful global segment reorganisation, refranchising more than 4000 locations, and eliminating US$500 million in annual SG&A expenses.

During that period, McDonald's also undertook several "velocity growth accelerators," including (1) an experience of the future layout, which features a combination of ordering flexibility, customer experience, and a more streamlined menu; (2) mobile ordering and payments; and (3) delivery alternatives.

When Easterbrook was appointed chief executive in January 2015, he was also tasked with adding outside perspectives that would help to develop new growth strategies that capitalised on McDonald's key strengths: its brand, its franchisees, and its scale (also the key components behind our wide-moat rating).

Kempczinski was one of the key hires during this time, joining McDonald's in September 2015 as executive vice-president of strategy, business development & innovation following leadership positions at Kraft and Pepsi.

McDonald's incoming ceo Chris Kempczinski

Chris Kempczinski's focus on menu innovation and restaurant operations make him an ideal candidate as new chief executive of McDonald's

Kempczinski had been actively involved with the velocity initiatives – including digital and delivery – and worked with franchisees to adopt these platforms since becoming the head of McDonald's US in January 2017.

We also believe Kempczinski's focus on menu innovation, restaurant operations, and international expertise (from his time at Kraft) make him a strong CEO candidate.

There is no change to our US$215 fair value estimate, wide-moat rating, or Standard stewardship rating following the chief executive transition, and see shares as modestly undervalued.

is a consumer strategist for Morningstar.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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