In a world where stocks trade in lockstep with each other, totally linked with the price of oil, can any one business leader do enough to break the stranglehold? On a day when the stock market got clobbered ultimately because oil shot down almost $2 and the Fed's decision on rates Wednesday looms large, I think the answer is a resounding yes.
That is, yes, if the company is McDonald's (MCD) and the CEO is Steve Easterbrook, the charismatic man who took over the helm of the fast food giant and I think is responsible for a huge part of the stock's increase. MCD shares have increased from $100 when he took over on March 1, 2015 to today when the stock vaulted to an all-time high of $121, before closing slightly lower on what amounted to a hideous day.
It's hard not to see it that way given that global comparable store sales -- the year-over-year gains from existing stores -- rose 5% and the U.S. increased 5.7%. Frankly, that's extraordinary. I was looking for 4% and people thought I was dreaming.
Now I will speak to what other CEOs are doing to change the course of their company's history, but let's deal with what Easterbrook's done here. First, he decided what McDonald's needed, particularly in U.S., was a simpler menu, which would lead to fewer mistakes, which then lead to more customers going through during key hours, which would then lead to a better mood among the franchises.
Okay, that sounds nutty. A better mood. Like karma or something. But hear me out: it's true you have to understand that McDonald's is really run by a huge team of franchises, who are the players, and Easterbrook is the head coach. If you can inspire them then they will work wonders for you. If you simplify the meal and there are fewer errors, then they will be more bullish about their stores and they will put extra people on and make the lines go even more smoothly. They will feel it matters more to keep their stores cleaner and more polished.
Then you add all-day breakfast and while many thought that was some gimmick, it is having a huge impact on the numbers. Now you have the McPick 2, as anyone who watched a quarter of any football game yesterday now knows about, or buttermilk chicken, which is also driving people in.
It's a virtuous circle for the franchisees as they see business is better so it is worth spending the time and the energy in the trenches to do make more sales.
Now here's what's amazing. I would say that this is just the first quarter for this McDonald's team. I say that because Easterbrook just introduced a loyalty app and it instantly got 7 million members. He hasn't even installed the technology that allows the highway stores to have kiosks so the food is brought to your car. He hasn't put through all the good things that may be working in one country and transport it to another. Remember, this man turned around Europe and now he's working his magic here.
Where are the customers coming from? I think McDonald's is taking share from pretty much everyone even as many millennials would indicate that this level of processed food is not for them, even as Easterbrook's been working to make the offerings more organic and natural. One of his first actions was to say that McDonald's would stop buying beef and chicken raised with antibiotics vital to human health. Who knows, he's got enough fire power to change the world's whole food chain, which would make a big difference, far more than a Chipotle (CMG) could ever do.
But I don't want to get ahead of myself. What Easterbrook is really doing is bringing two concepts: value and convenience. These are time honored, whether the consumer is stretched in the pocketbook or stretched by the clock. If the place offers a convenient in and out and a good price and it tastes good, that's a winning formula.
Now I don't want to get ahead of myself because it isn't like Easterbrook is going to do something tomorrow that will propel the stock higher again. The stock will go right back where it was if oil is down tomorrow, even as lower oil is positive for McDonald's because it puts more people out on the road, even though you need to know that McDonald's did not credit any of the turn on lower gasoline prices.
But let's talk about the other side of the trade. Look at the stock of Twitter (TWTR) today. We learned this weekend that four executives have left, including the guy who created moments, which many of us had high hopes for, and you are getting user growth of only 3%. What does this say about the previous leader of Twitter, Dick Costolo, and the team he assembled? What does it say about Jack Dorsey, the current CEO who also happens to be the CEO of Square (SQ)?
Now contrast that with Facebook (FB), which reports on Wednesday. You are seeing a super level of growth from Facebook and it's basically in the same business as Twitter. Where's the turnover there? (Facebook and Twitter are holdings in TheStreet's Action Alerts PLUS portfolio.)
At some price, somewhere Twitter's a buy which is why my Charitable Trust has a tiny position in the name. It's got an unbelievable franchise. It's ubiquitous. It's got a loyal following. It just can't grow and growth is the magic elixir that propels all stocks whether they be oil stocks or financials or restaurants or techs.
It's the same way you could argue that American Express (AXP) has lost a huge amount of market cap under Ken Chenault at the same time that competitors MasterCard (MA) and Visa (V) have gained gigantic gobs of market cap under CEOs Ajay Banga and Charlie Scharf, respectively.
Now we know none of this matters as long as we are in the grips of this ridiculous linkage with oil and gasoline. We now all accept that the weakness in oil has to be demand related even as companies as smart as Schlumberger (SLB) told us otherwise just last Friday.
We know that Fed policy on Wednesday can transcend anything that Easterbrook may do to the stock, too.
But here's what you need to remember. Easterbrook isn't about influencing the stock.
He's about influencing the company. The stock will come later. His guidance and transformation will generate increasing returns that give the company more money to buy back stock and to raise its already bountiful dividend.
So, what do you do? You put this one away and when the stock market throws a sale because of the bogus lockstep to oil or the endless Fed chatter I want you to think about McDonald's as a place to go, not as a store, if you don't like processed food, but as a stock.
Or, in my case, I want to go to the store, because I love that Egg McMuffin and the stock. But I want this idea on the front burner when it's knocked down by extraneous market forces like oil or Fed talk. Yes, one person can influence the direction of a company and create a turnaround that impacts both the enterprise and the stock. In the case of McDonald's that's Steve Easterbrook and all I can say is congratulations, what a fabulous and, I think, long-lasting turn.
