McDonald's Falls on Announcing $1.2 Billion Hit for Russian Exit

© Reuters.

By Geoffrey Smith 

Investing.com -- McDonald's (NYSE:MCD) stock edged down 0.4% in premarket trading on Monday after the fast-food giant said it had started a process to sell its restaurants in Russia to a local buyer.

The group said it expects to book a non-cash charge of around $1.2-$1.4 billion against earnings as a result. It also said it will recognize "significant foreign currency translation losses" previously recorded in shareholders' equity. 

It aims to keep its trademark present in the country, however. 

The announcement resolves much of the uncertainty hanging over the fate of its chain in Russia, which has been a valuable source of profit for the company since it first opened there over 30 years ago - albeit one that had contributed less in earnings since Russia's first invasion of Ukraine in 2014 and the consequent weakening of its economy.

"The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald's to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald's values," the company said in a statement.

McDonald's expansion in Russia after the fall of the Soviet Union had been a powerful symbol of the victory of consumer-led Capitalism over Communism at the end of the Cold War, but its retreat is unlikely to have the same symbolic status, given that hundreds of other western businesses have already beaten it to the punch. Many western companies had taken the first steps to wind down their businesses immediately, but the administrative process of exiting is proving less simple. Companies such as Heineken (AS:HEIN) and Nestle (SIX:NESN) are eager not to sell viable businesses for peanuts, and are also sensitive about abandoning their local workforces, which in many cases run into thousands. 

McDonald's had closed its restaurants in Russia on March 8, some two weeks after the invasion, but will pay its staff there until a deal is completed.

The news came on the same day that French automotive group Renault (EPA:RENA) announced that it has agreed to sell its own-brand business in Russia and its controlling stake in Avtovaz, the country's largest carmaker, back to Russian buyers, with Reuters reporting unnamed sources as saying that it would receive only a symbolic price of 1 ruble.