How do you read the trends in a business from the outside? Look at the articles on page 3. We all read the headlines. But headlines are dictated by what’s relatively interesting TODAY. This short-term phenomenon is not a good way to interpret what’s happening over time.
On Wednesday of this week (8/31/05) the Chicago Tribune business section led with articles about the business impact of Katrina. As they should. But when you turned the page, there were two very interesting, and short, adjacent articles on Motorola and McDonalds (courtesy of Bloomberg News).
The 4 inch by 4 inch text box on Motorola calmly reported that the company was retiring another $1B in bonds. This is on top of $2B in bond repurchases over the last year. Debt is down over 40% since January, 2004 and the company’s credit rating by Moody’s has been raised. By the way, sales and profits have risen over 10% for 6 straight quarters. The lower debt will allow Motorola to consider new investments in R&D and possibly acquisitions.
Meanwhile, the 2 inch by 8 inch text box on McDonald’s said the company was borrowing $3B to repatriate foreign earnings in order to take advantage of a short-term government tax break. By the way, this caused a recent 10% drop in reported earnings on top of the smallest sales gain in 2 years. The repatriated cash will be used to extend the company’s business model by opening new stores (anyone recall the store shuttering program in 2000-2001?), remodelings and paying salaries (no joke – paying salaries!).
I’ve written in this BLOG before about the great difference between Motorola and McDonald’s. One has disrupted itself and opened White Space to innovate – clearly moving rapidly from the Swamp back into the Rapids. The other is practicing Defend & Extend management as it continues struggling in the Swamp. To track performance, keep your eyes on page 3.