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Magnetar Capital Establishes a New Position in McDonald’s

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Magnetar Capital and McDonald’s

In 4Q14, Magnetar Capital initiated a new position in McDonald’s (MCD). It purchased ~446,000 shares. McDonald’s represented 0.76% of the fund’s fourth quarter portfolio holdings.

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Overview of McDonald’s

McDonald’s is a fast food, limited-service restaurant. It has more than 35,000 restaurants in over 100 countries. It employs more than 4 million people. McDonald’s serves 70 million customers per day. This is greater than the population of France. According to IBISWorld, in 2014, McDonald’s had the largest share in the fast food restaurant industry in the US. Its had a 17% share.

In the US, McDonald’s competes with fast food chains like KFC (Kentucky Fried Chicken)—under the umbrella of Yum! Brands (YUM), Popeye’s (PLKI), and Wendy’s (WEN). McDonald’s has a leadership position in the fast food restaurant space. It’s ahead of Burger King—owned and operated by Restaurant Brands International (QSR). McDonald’s accounts for 4.10% of the Consumer Discretionary Select Sector SPDR Fund (XLY) and 3.10% of the iShares U.S. Consumer Services ETF (IYC).

Same-store sales decline and profit margins contract

McDonald’s revenue dropped to $7.1 billion in 4Q14 from $6.6 billion in the quarter last year—primarily due to the decline in the European segment’s sales. In 4Q14, same-store sales declined 0.9%. McDonald’s reported a net income of $1.09 billion. It declined 21%—compared to $1.39 billion in the fourth quarter last year. The decline in net income was due to poor same-store sales. It was also due to stores closing in Russia and Ukraine, higher G&A (general and administrative) expenses in the US, and challenges in China and Japan’s markets. The net profit margins were also down to 16.7%—from 19.6% in 4Q13.

Outlook remains challenging

Management expects to face sales pressure and volatility during the first half of the year. To soften the impact, the company will have lower capital expenditures as a result of slowing investments in troubled markets—like the US, Russia, China, and Germany. The company stated that it will focus on redirecting G&A expenses towards priority growth opportunities. However, it still expects to incur restructuring costs in 1Q15.

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