The Wall Street Journal - 23.10.2019

THE WALL STREET JOURNAL. Wednesday, October 23, 2019 |B3

BERLIN— Continental AG,
one of the world’s biggest
auto-parts suppliers, said it
would reorganize its business
and book a €2.5 billion ($2.8
billion) write-down, the latest
evidence of how softening car
demand and the shift to elec-
tric vehicles are reshaping the
car-manufacturing economy.
Continental said it had
shelved plans for a partial ini-
tial public offering of stock in
its powertrain division—home
to most of its pre-electric
technology—choosing instead
to spin off the unit to existing
shareholders.
The business, Vitesco Tech-
nologies, which makes parts
for fuel-powered vehicles, will
become a potential vehicle for
acquisitions or a merger.
The decision indicates that
a pure play centered on con-
ventional car technology is no
longer enticing enough to out-
side investors in a world
where demand for traditional
cars is cratering while govern-
ments and manufacturers—if
not buyers—are pivoting to
electric mobility.
So does the multibillion-
euro write-down, which will
hit third-quarter results, re-
flecting the company’s gloomy
assessment of the car market’s
medium-term prospects.
Continental said sales for
the three months to the end of
September totaled €11 billion,
down 3% from a year earlier.
The company added that it ex-
pects to post a loss before ad-
justments for the full year.
Shares of Continental rose
4.1%, as investors cheered the
decision to separate the pow-
ertrain business, a move that
could accelerate consolidation
in the supply industry, which
is struggling in the slump.
Analysts predict that global
auto sales could decline 4% to
6% this year.

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nology spending to be short
term, and that digital kiosks,
mobile ordering and other
technology investments are
now boosting sales.
“Our belief is those who
aren’t investing in technology,
at some point will be behind,”
McDonald’s Chief Financial Of-
ficer Kevin Ozan said.
Earnings of $1.6 billion were
down 2% from a year earlier
when accounting for currency
fluctuations. The company re-
ported earnings per share of
$2.11 and sales of $5.4 billion.
Analysts polled by FactSet ex-
pected earnings per share of
$2.21 adjusting for one-time
items, and $5.5 billion in sales.
to boost customer visits. U.S.
customer transactions contin-
ued to drop in the quarter
ended in September, though
they grew overall globally.
McDonald’s has struck a
number of technology deals
this year to try to boost sales
and improve operations. But
those deals are driving up ex-
penses. The company said ad-
ministrative expenses grew 6%
during the quarter, and
McDonald’s now expects those
costs to grow by 1% to 2% dur-
ing the fiscal year. Previously,
the company expected those
costs to be flat for the year.
McDonald’s executives said
they expect the drag from tech-
the burger market during the
quarter, but lost out in other
areas, including chicken.
McDonald’s was largely an
afterthought during the so-
called chicken sandwich wars
that bubbled up late this sum-
mer, and the company said
Tuesday that it noticed com-
petitive pressure heighten dur-
ing the period. “We did go a lit-
tle bit the opposite way on
chicken,” Mr. Easterbrook said.
McDonald’s last month
tested a new spicy buttermilk
chicken sandwich as it seeks to
compete with crispy poultry of-
ferings from Popeyes Louisiana
Kitchen and Chick-fil-A.
It has been fighting for years
prices to help boost sales as la-
bor and other expenses grow.
Consumer prices for food
served at restaurants have
grown recently by 3.2%, an in-
crease not seen since 2009, La-
bor Department data show.
Fast-food competition con-
tinues to be intense, particu-
larly for burger-focused chains.
Visits to U.S. fast-food
burger restaurants were down
1% in the year ended in August,
according to research firm NPD
Group Inc. That was weaker
than the average for fast-food
restaurants, which saw a 1% in-
crease during the period.
Mr. Easterbrook said
McDonald’s grew its share of
BUSINESS NEWS
McDonald’s Corp. needed
promotions and price increases
to help boost sales in the third
quarter as the world’s biggest
burger chain by revenue works
to lure more customers.
Shares of McDonald’s, up
18% in 2019 through Monday’s
close, slid 5% Tuesday as quar-
terly earnings and U.S. sales fell
short of expectations.
The company said same-
store sales grew 5.9% globally
in the quarter, above the 5.4%
that analysts polled by FactSet
were expecting. But U.S. sales,
growing by 4.8%, were down
from the previous quarter and
below analysts’ expectations.
It still took offerings and pro-
motions, along with a nearly 3%
increase in menu prices in the
U.S., to boost sales, the Chicago-
based company said. McDonald’s
Chief Executive Steve Easter-
brook told investors Tuesday
that renovated stores, digital ki-
osks and technology investments
are helping to boost sales and
visits, even if they are siphoning
off profits to implement.
“The world is different than
it was in 1955,” Mr. Easterbrook
said, referring to when
McDonald’s began franchising.
“We’re keenly aware that we
have to be out ahead of these
changes.”
Restaurants across the in-
dustry have increased menu
BYHEATHERHADDON
McDonald’s Falls Short on Profit
Sources: FactSet; the company
6
0
1
2
3
4
5
%
2017 ’18 ’19
McDonald’sU.S.comparable-
storesales,changefrom
previousyear
3Q 2019
s 4.8 %
The chain’s costs were driven up by efforts to boost sales. A restaurant in New York’s Times Square.
RICHARD B. LEVINE/ZUMA PRESS
well above analyst expecta-
tions of around $98 million.
The one-shot treatment,
which aims to cure a devastat-
ing muscle-wasting disease in
infants, launched at the end of
May. It is one of the first in a
newwaveoftreatments
known as gene therapies
whose price tags are raising
concerns about whether they
can be afforded by govern-
ments and health insurers
struggling to control spending.
Novartis Chief Executive
Vas Narasimhan said on a call
with reporters Tuesday that
99% of patients who were eli-
gible for Zolgensma were re-
ceiving it, although some must
go through an appeal process
to do so. He added that even
with appeals, patients were on
average receiving Zolgensma
within 30 days of requesting it.
To allay payer concerns, the
company is offering outcomes-
based deals in which a portion
of the cost is refunded if Zol-
gensma proves ineffective. It
also is offering insurers the
option to pay for the treat-
ment in five equal installments
over five years.
Dr. Narasimhan said that
while the outcomes-based of-
fer had been taken up by every
payer that has agreed to cover
Zolgensma, there had been lit-
tle interest in the installment
option. Although the payment-
by-installment approach would
ease the upfront cost, cash
flow isn’t a major concern for
insurers, which are by law re-
quired to hold large reserves.
“We are seeing rapid uptake
because many of the payers
see both impact and value,”
said a Novartis spokesman,
pointing to an independent as-
sessment by the Institute for
Clinical and Economic Review.
The nonprofit concluded Zol-
gensma was worth $2.1 million
when given to newborns who
haven’t developed symptoms
of spinal muscular atrophy.
Zolgensma halts, rather than
reverses, the disease, so the
earlier a patient receives treat-
ment, the better the outcome.
Novartis reported an 8%
rise in third-quarter net in-
come to $2.04 billion. Sales
rose 10% to $12.17 billion. Core
operating profit was $3.75 bil-
lion, up from $3.26 billion.
Novartis AG reported a
strong launch for its new gene
therapy Zolgensma—the
world’s most expensive drug—
overcoming concerns about
whether insurers would cover
the treatment and a data-ma-
nipulation scandal at the unit
that makes it.
Zolgensma, which costs $2.1
million a patient, brought in
$160 million in the three
months to Sept. 30, its first
full quarter of sales. That was
BYDENISEROLAND
ANDCARLOMARTUSCELLI
Novartis Lauds Launch of Pricey Gene Therapy
NY