Why Is McDonald's Offering Buyouts To Corporate Employees?

Per a recent Crain’s Chicago Business report, Oak Brook, IL-based McDonald's Corp. (NYSE:MCD) will start offering voluntary buyouts to several employees at its corporate headquarters, beginning late July.

Out of the company’s total workforce of 2,000, over 400 employees at the director level and above will likely be entitled to buyouts, wherein workers will be offered severance packages on the basis of their salary and span of service.

Employees attended departmental meetings last week, to talk over the buyout packages. However, it remains to be seen that how many of those eligible actually agree to the package.

Rationale Behind the Move

Last May, the company’s CEO, Steve Easterbrook announced a turnaround plan related to restructuring of its worldwide operation and certain other financial updates. The initiative came on the heels of the company’s dismal performance in 2014 in terms of revenues, profit and customer traffic.

In Nov 2015, the company raised its net annual general and administrative (G&A) expense savings target to $500 million, from $300 million announced in May 2015. The company expects to realize a majority of these savings by the end of 2017 on the back of its refranchising efforts, in addition to streamlining across corporate, segment and market organizations, and greater efficiencies in its Global Business Services platform.

Thus, since the announcement of this plan, the company has been engaged in a series of buyouts and layoffs in order to streamline operations and increase operational efficiency.

Keeping with this, in 2015, the company reportedly reduced its headcount by over 400 workers via layoffs and by soliciting some employees to reapply for fresh positions. Moreover, McDonald’s announced that it will cut 70 jobs at a Columbus, OH office during the rest of this year.

The lay-offs may also be due to the company’s efforts on reducing its workforce to fit in its new corporate headquarters at Chicago.

Our Take

The turnaround plan seems to be paying off given the company’s better-than-expected results in first-quarter 2016. Also, McDonald’s recorded positive comps growth on the back of solid comps across all its segments.

Zacks Rank & Stocks to Consider

McDonald's currently has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in this sector include Papa John's International Inc. (NASDAQ:PZZA) , BJ's Restaurants, Inc. (NASDAQ:BJRI) and The Wendy's Company (NASDAQ:WEN) . All the three stocks carry a Zacks Rank #2 (Buy).

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