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McDonald's to Lay Off Employees Under Cost Reduction Plan

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In an effort to restructure its U.S. business, McDonald's Corporation (MCD - Free Report) is planning a fresh round of layoff. Per The Wall Street Journal, the company has conveyed this decision to its U.S. employees, suppliers and franchisees via an email. However, McDonald's has not disclosed the exact number of layoffs. Following the news, the company’s shares increased 4.4% yesterday. In a year’s time, the stock has gained 11.9% compared with the industry’s 3.5% upside.

The retrenchment — part of the restaurant’s initiatives to reduce costs by $500 million — is expected to be achieved by the end of 2019.  McDonald’s spokesperson, Terri Hickey said “We are putting into place a new U.S. field structure that will better support our franchisees and will ensure McDonald’s continues on a path to being more dynamic, nimble and competitive. These planned actions are consistent with our previously announced $500M G&A targeted savings, which we expect to achieve by the end of 2019”.

McDonald’s is likely to reveal more details on this matter on Jun 12. Through this restructuring initiative the quick service restaurant targets to improve its profitability. Of late, McDonald’s margins have been under pressure due to wage increases globally. This apart, additional health care costs related to ‘Obamacare’ in the United States led to an increase in labor costs.

Furthermore, costs related to brand positioning in all key markets and ongoing investments would continue to weigh on margins at least in the near term. Increased commodity costs may further pressurize margins. In the first quarter of, consolidated margins contracted 150 bps to 16% due to China/Hong Kong transaction in 2017 and wage increase.

However, this Zacks Rank #3 (Hold) company is consistently trying to regain consumer confidence and revive sales in all its served markets through menu innovations and promotions.

Key Picks

Some better-ranked stocks in the same space are Wingstop Inc. (WING - Free Report) , Dine Brands Global, Inc. (DIN - Free Report) and Denny's Corporation (DENN - Free Report) . While Wingstop sports a Zacks Rank #1 (Strong Buy), Dine Brands and Denny's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop has an impressive long-term earnings growth rate of 19.5%.

Dine Brands Global has reported better-than-expected earnings in the trailing four quarters, with an average beat of 7.8%.

Denny's has reported better-than-expected earnings in the preceding two quarters.

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