NEW YORK/CHICAGO – McDonald's Corp. (MCD) Chief Executive Jack Greenberg Thursday abruptly said he would retire, as the company that invented fast food struggled to cope with falling profit in a saturated hamburger market, the outbreaks of mad cow disease and poor service.
Jim Cantalupo, former vice chair and president of the company, was named to succeed Greenberg, 60, when he leaves at at year's end, the company said in a statement. The restaurant chain just eight months ago said Greenberg, once a Wall Street favorite whose star faded, had agreed to stay at his post for three more years.
Analysts said they were not surprised by Greenberg's retirement, citing McDonald's disappointing profits and the 55 percent drop in its stock price since Greenberg became chairman in 1999.
"It just didn't seem like Greenberg had the right answer to their problems. He wants to discount and refurbish stores and do all of this stuff, but I don't think that's going to drive the top line or the bottom line," said Bill Cottrell, portfolio manager at the State Teachers Retirement System of Ohio, which holds about 2.1 million McDonald's shares. "It's probably something that was needed."
Shares of McDonald's closed on the New York Stock Exchange up 41 cents, or 2.2 percent, to $18.78 after the news.
The announcement came as Greenberg, a former accountant who rose through McDonald's financial ranks, struggled to revive sales in the United States, the world's largest fast food market.
McDonald's expanded the number of its signature Golden Arches restaurants by more than 30 percent during Greenberg's five years at the helm.
But after years of heady growth, McDonald's faced growing competition in a saturated market. Its food and service quality suffered and critics questioned whether it had grown too rapidly.
A hamburger price war broke out with arch-rival Burger King Corp. , and the discounting threatened to further erode profits. Britain's Diageo expects to sell its Burger King chain this month despite one of the main franchisees AmeriKing filing for Chapter 11 bankruptcy protection, industry sources said Wednesday.
One of Greenberg's biggest problems was disappointment that a new cooking system aimed at improving quality and service did not live up to expectations.
Overseas, sales have been hurt by outbreaks of mad cow disease in Europe and Japan, which weakened demand for beef, as well as currency crises in Latin America.
McDonald's posted earnings declines in seven out of the past eight quarters. The company last month announced layoffs and signaled that it would begin to slow the pace of expansion, exiting several overseas markets. In October it announced plans to drastically cut back on new restaurant openings in the United States, and said it would spend more money to refurbish its existing stores. But some investors said the changes were too little too late.
"They should drastically slow the pace of new store openings in the United States, preferably to zero," said David Kolpak, an analyst with Victory Capital Management, which owns 1.23 million McDonald's shares.
"I think the discontent (with Greenberg) has been with the pace of that change, and investors should be able to read some hope into this management change in that a new team may have more of a mandate to move faster."
Cantalupo, 59, rejoins McDonald's board after a brief absence. A long-time McDonald's veteran, he joined the company in 1974 as controller and was named president of McDonald's International in 1987.
"He's an operations guy that's been around a long time," said Dennis Lombardi, a restaurant and food service consultant with Chicago-based Technomic Inc. "He is one of the guys that has ketchup in his veins."
In addition to McDonald's current financial woes, Cantalupo inherits a range of growing pressures, including managing a fast-food giant amid heightened U.S. concerns over obesity and growing distaste for U.S. corporate icons, as the United States prepares for a possible war with Iraq.
Greenberg, who has worked at the Oak Brook, Illinois company for 21 years, was named chief executive in August 1998 after heading McDonald's U.S. operations.
Since 1999, the company's stock has underperformed both the Standard & Poor's 500 Index and the Dow Jones Industrial Average.