MCD - Earnings call transcript Q3 2017

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Operator

Hello, and welcome to McDonald's October 24, 2017, Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded.

Following today's presentation, there will be a question-and-answer session for investors. I would now like to turn the conference over to Mr. Mike Flores, Investor Relations Officer for McDonald's Corporation. Mr. begin. may you Flores,

Michael Allen Flores

USA, you by President us. Steve and Kevin and of Financial Thank is conference the webcast being Easterbrook; me call Officer, live McDonald's President and are Chief for Ozan; Kempczinski. for everyone. Today's With call replay joining recorded on Chief Chris webcast. Hello, Executive Officer,

also comments. I it GAAP like to over I'd release remind documents forward-looking the over that our on turn are to earnings Steve. to it www.investor.McDonalds.com, our mentioned their now, Before turn reconciliations non-GAAP statements the today's and apply are available filing of corresponding X-K everyone with And call Both financial Steve, I to on in as measures. want measures any to

Stephen J. Easterbrook

everyone. morning, Good Mike. you, Thank

In our and build we've built business these performance building stride. business enabled global driving grounded counts comparable quarter. each continued segments, up enhanced the been U.S. our of Whilst its operating our momentum This momentum McDonald's and food, the markets customers. move that areas, evolving all marks broad-based, consecutive globally at have to winning us sales is value our needs serve I'm consecutive in more an deep system, more regained the global to and meet particularly comparable the has Our quarters we guest local and and efficiency the up sustainable customers X% quarter across impact pleased experience. and McDonald's of X.X%. integrated Across They've sales platforms, nine to of in insights. greater speed, count customers, great-tasting We're third comparable with better building often, our across back of and a third compelling guest growth. growth comparable

provide started, will President As McDonald's quarter. will on joining Mike provide get the us our of financial But USA, today. of Kempczinski, we the of Chris Kevin results call, at Later Chris into U.S. call, performance. insight the to for in mentioned us the have drivers top the texture

Kevin M. Ozan

Thanks, Steve.

guest As for led comp XX.X%, performance strong in with And of positive market were counts High want a increased results Canada sales of quarter. each third provide build sales the the segment significant most by Steve across X.X%, regions. performance a as markets as on gap momentum that segment. Growth International momentum delivering the this across segment's the comp for and to and segment's the continued sales led geographic in and comp our Comparable continues global the U.S. performance contributor well. I system. competitors. will Lead details double-digit a strong mentioned, strong in reflect increased Japan's up performance continuing China our QSR quarter, X.X%, rest of segment Foundational UK context more comp positive to performance X.X% on segments all each sales how little the in our contributed sales for sales positive to with comparable provide sandwich drivers markets segment by rose the more and few comps the comparable European versus the along the Chris for minutes. positive our with the its

charges. of performance. gain is Earnings our of on to it's only of benefiting top-line special non-cash Plan $X.XX. sale more the also consisting not XX% China the Hong in quarter Kong Growth driving This a and than impairment items, our Velocity businesses Our share growth, operating grew unrelated per $X.XX and for included

strategic up third prior-year items was our X% or these EPS year. Excluding X%, and last quarter in over constant charges, $X.XX, currencies,

menu were have pricing up third for in X.X% home the away in third X.X%, X.X%, quarter to inflation we commodities, year-over-year provide affordable slightly U.S. U.S. our great-tasting disciplined in was from as costs and Moving the last Commodity approach of our the below continue up on to food which at pricing price. versus to an was pricing quarter food a year.

the We pressure basket back expect full of reflecting in year, for continue increase our to the the the to about anticipated commodity X% half U.S. year. grocery

costs For more menu the the International than were Lead and about markets, were year-over-year. for prices quarter, commodity third up X.X% up X.X%

the company-operated Moving of down of $XXX refranchising franchise margins expense improvement with XX company-operated sales quarter, consolidated the the of as On increased $XXX a China to About percentage were until million. depreciation for decline due the assets combined having Hong points to basis, benefit no the million sale XX. in basis comp drove as classified and P&L, our and for impact held increase margins was the for transactions XX.X% half major July of margins along for an the quarter. a positive our Kong, in of

the High will the percent this same quarter quarter the we to remaining depreciation High segment in this be restaurants to attributed longer benefit. a about the benefit. basis, to Growth For can be Growth in have three-quarters for expect fourth of segment, as company-operated no margin similar results segment fourth reported improvement the XXXX, percentage margins On

Regarding indicated due we in of G&A, to currencies, between fluctuations to for at spending. year the X% that be with down the our beginning to constant G&A the quarters X% of the expected about year, we timing

down quarter our currencies, of costs the months being nine G&A which third X% the to year, which to We the fourth means similar quarter, expect X% about should was constant down be down first down resulted for be in cost full G&A X% in through quarter. G&A percentage year. total a For the now third

global of the year, enhance year, reasons: and technology half of delivery. main the in continue back and second higher two spending are the deploy mobile like as higher app we the spend Third the year solutions our as and kiosks; back and technology to develop, primarily Future, and deploy fourth quarter quarter in they in mobile Experience this and first the half of G&A to higher due than U.S.

rate effective and tax tax quarter third month was was nine the XX.X%. XX.X%, Our rate

full our XX%. the to for expect we year rate tax XX% be to that, Given now

Turning a to foreign expect positive exchange to the full share. benefited $X.XX for the of year. from quarter for currency $X.XX $X.XX foreign translation At per and fourth the rates, results impact quarter, for we foreign currencies, by $X.XX about current currency

this move as of is through the only, directional usual, change As will year. we remainder rates guidance the because

Finally, return as the per $XX strategy the communicated expectation we long-term This last month, to billion the in $X.XX of $X.XX our share, to billion annually. confidence increased we shareholders dividend our company's ending XXXX. three-year to X% and to $XX by period equivalent for reinforces our quarterly

in our continue we the a to third to same developmental is and to of want couple back began those franchising I markets. a off it a the milestone minute the franchised like The of sale China will strategic XX% Kong we'll and initiative. our the rigor mature franchised markets which caps margins restaurant of model using quarter continue from these And license while goal XX% more a we've to percentage ago. that total efficiently to turn stable in I accelerate our stream forward. in restaurants more our whether under spend markets comprise our will margin on in Hong our restaurants, and refranchise Steve, growth achievement We'll refranchising ownership discipline creating to going Before model of a XX%. markets, grow of of large years, than right the earnings. to increased evaluate the to In revenue determine X,XXX restaurants financial U.S., other certain dollars now company-owned markets mix in our And by years three optimize just

on As cash billion our said to Investor EPS I transaction, our at will Kong through Hong we March $X.X growth operating repurchase dilutive shares. revenue, to income and received plan year-over-year activity comparisons our of the rates about use term, the refranchising in a which proceeds We X from choppy. impact near Day, XXXX have China, making

impact the refranchising a the not million last We quarter EPS of will year quarter this per on negative until about expect we realized XXXX. of the year benefit have XXXX. in that $XXX third a over reoccur cents Also, few transactions depreciation will completed

use efforts resources, royalties, new a receive the benefit capital to as an we along lead also markets, operating will growth equity in in a they of business with these and unlock these Going And forward, The pick-up XX% target business income. results our our refranchising our margin model. for include a for critical while efficient we've G&A to years way the our our and mid-XXs royalty to Hong steady without China, more come our potential will heavily-refranchised for under partners our markets stream strategic increase of Kong. on through moves made of our sales-based

At of recent benefited the we're delivery to performance our growing we're sales once and grow growth. transactions, comparable primarily we reliable including digital growth lapped velocity that established, the and running So time, better other completion steady from and and of restaurants. to expect financial also near-term, with Experience in we've confident the pleased we're on Future, has continue accelerators revenue return which will the we've our that earnings guest counts same XXXX, business. and the in achieve the of long-term major Beginning targets to focused refranchising

Steve. turn Now, back it I'll to

Stephen J. Easterbrook

customers. top by the casual value visits we menu, is regaining the designed converting lost customer experience retaining of At each grow customers and and guest growth market call, to the I about talked committed counts, more the around has Kevin. to built Thanks, customers that have, platforms we've

platform each in thick, having profiles. and artisan capture beef now burgers market's average restaurants traffic UK on cheeses piled France, Angus by note the innovative come the juicy higher gastronomy flavors with Signature chef-crafted motivated quarter, range of menu, success the flavor bacon, enticing and In that drove executed that version pub burgers. Italy Mac, sandwiches and big and with the Canadians' it. and for uses Mighty We know and a more. value and ingredients success inspired customers Every and more beef is deals the and breads, Grand preference the of primarily beechwood-smoked customer the market high with took had their value toppings English popular complement major regional modernized international to beef, The local of great offers Italians spend check. with to to a a freshly-prepared often During country. sauces and that approaches line that burgers compelling France premium U.S. of Chicken Signature bun. with and beef meats, chicken the by sourcing. their incremental great brioche-style chicken launch Seriously and convenience Canada's provides with appeals It with of the loved market

offered menu. markets compelling our value breadth across quarter, the the of During the

leveraged drive to dessert incremental and Meal Minions Japan, family many executed the example, Happy with strength specials. and of bundles promotions that programs markets other business Italy, and For value our popular value France

Retention offers. mobile to grow portion digital are increasingly redemptions the of offers with of driving and incremental We a traffic meaningful visits. check growth representing month-on-month, with continues

Importantly, awareness mobile this is deploy also building increasing order our mobile our pay and adoption of base and the users, path. digital functionality we of as

did track our We remain order they U.S. making deploy XX,XXX a impact deployment the our have solid not and of Plan of the restaurants. Growth our accelerators. pay Although restaurants are the results on Velocity the on progress we end year, material including to quarter, of for mobile by on to all

We delivery continue which with our of expand significant deploy, to markets. updates, expanding we and we as successive opportunities market. rapidly each throughout challenges We in has made as learn scale implementing progress

delivery the the around we've offer existing and XX markets countries. with the in XX% delivery in world. of course the Over restaurants across restaurants over McDonald's we months, across now delivery over Asia restaurants of East, X,XXX X,XXX Middle the Along introduced nine in past

powerful improve our from year. total in remain world. the XX,XXX best by We're offer confident on to and to the approaches where restaurants gaining of the learnings model around spreading for our We be as look delivery track business we markets a will remaining scale, it's continue the top-performing as at markets traction. delivery We delivery that take we end the accelerator

rolling out velocity The EOTF. the of third Experience accelerator is Future, or

a roughly restaurants restaurants and the EOTF deployed We with less of has elements in experience more that make customer personal stressful. with now are our improvements quarter all continuing system. the the McDonald's inside in been

we're rolled full Canada how the for and out approach UK our one-third customers. they the about proving deployment, in EOTF to we've in And France EOTF both of can As restaurants powerful the our operational City. on left large committed where Salt are successfully and U.S. full running be and examples vision are to of results. we support Lake will in of St. the particular, Owner/Operators. international our requires the far we're of Recently, the to me alignment commitment Successful I a cities future joined our about our Future they're of not other great And and, digital, execution Cleveland similar for seeing and countries, behind. and markets such which growth that We our driving share the initiatives, confident success. to strategy our delivery Germany, Louis, and Experience I many Detroit, with in market many the Chris key enjoy better saw where East visits restaurants, Owner/Operators be excellence

more U.S. Thanks for today, Now, business. about us progress we'll Chris. of hear our the joining

Chris Kempczinski

Steve. proud opportunity solid the and we're of I join call to on business. our and The update growth, you, the continues to appreciate state U.S. the I'm and making. the today system our U.S. of Thank progress demonstrate everyone

of the about XXXX, excited As I potential ideas to our look pipeline ahead they I'm and offer. growth

right a we're to right. to be effort of really at a across execute and get will key investing number and high level the now time us, a that initiatives of lot For

into QX then insight performance and we're more talk preparing provide XXXX. I'll me our for how Let about

we of resulting X.X%, in a versus gap points QSR XXX sales sandwich grew QX, competitors. comp basis the comp sales During

comp by positive positive our was growth third guest positive our count comp of is Importantly, guest of comp sales consecutive sales growth growth. second quarter quarter growth. and supported count consecutive This

gap currently three have For posted market overcome offers we past growth. sluggish a with that IEO pleased traffic this versus because we headwinds QSR. limited We're particularly a favorable performance overall comp the the had of quarters, to

Our be success factors. to can attributed several

offered number that across resonated consistent tactics compelling with of First, programs we value customers. a our clearly

$X and some preferences. offered of food offers exciting with tailored size to via soft traction We starting to for return We're deals. X program McPick also supplemented buying that continued the our the that $X real get app with targeted it any mobile drinks customers' are unique our

In significant this to our able Signature in customers guacamole, on chicken, flavor or traffic restaurants products. been increased our three launched the to Sriracha we Crafted flavor sandwich beef In gave QX, kick. our that in with modern an a premium combinations, menu choices, we into that platform McCafé higher-margin after brand to equipment future. new a either Dijon. drove barbecue line we we've to Espresso can up sandwich In Second, the also for meant a This trade perform August, news well, with the capitalize be our available and McCafé Espresso extra very the us look significant of reintroduced line system. systems new, U.S. for The rotated line bacon products across September, and bacon pico sweet McCafé McCafé more including McCafé the upgrade maple our that a confidence Crafted reaffirming growth new in reintroduction

As we've with us the quality they with rising meet taste when Crafted customers' improve products Signature of our reward expectations, to business. seen and both McCafé, we and more

high delivery track in learning seeing of and customer to the particular sales Through I believe seeing McDonald's on we of delivery, response new mobile mobile encouraging to potential X,XXX and have about by the over of for option. the we're pay Future seeing surface customers, opportunity. the we're expect reach XX,XXX making the currently and to Future. X,XXX with a to younger reach New truly the success partnership like customers. number and Miami of year. couple and of of we our lot in the with level deployed our year-end. out will just XX% we're years. of significantly to comp We our accelerators increase Experience now with evaluate targets. all check-in this that projects Los offer the new restaurants. Future a velocity UberEATS, of with now and restaurants Experience dense the to continuing I'm roll also delivery Angeles. end convenience curbside scratch Finally, And We to our We're about and penetration order beginning including consistent over urban lifts progress a York, have in our by really Boston, restaurants in we're we're We're good curbside And metros digital excited pay restaurants last, whole restaurants order Experience of next on and X,XXX with

in critical at trained U.S. our accelerates, are staffed a of execute restaurants As the the activity and high it's to properly level. pace that

calendar. size ramping train labor confident the and capacity delivery. levels Project We've we and grill, created resource like time, to Australia project management to that and margins to internal as more through maximize impact similarly hospitality, to also and one restaurants Steve to our we national feel our U.S. Our another. before short-term We've bottlenecks the that ensure through operator better markets that in now antithetical as situation. will the flex be Two and temporary not needed deployment regional McOpCo manage Offices ago, aim aggressive evident to dedicated seen declared launched nowhere run other each At work the hot Management in and need prove at next this McDonald's deploy right This six organizations speed our We for up UK for the when ability the quite Canada, prepare, same about have a are to capabilities years in and we're do curbside, anticipate they've to investing on plans market. organizational like off this to both months than and needed. XX initiatives initiative. was we

St. really helping equipment of support is multi-year to owner in even their system letters will have Steve U.S. Detroit, an remain On showing about value. time, ensure Almost U.S. to a in U.S., now updating better our Cleveland, and We're and on As a what's the confidence pride excited upgrades almost better important on the to of operators same dimension, competitive make our commitment update cities, Lake, was up showcase more signed to progress. pursue the of and recently that energize restaurants system XXX% At results. that agenda. moment business I to aggressive performance food that's and EOTF, deliver running in the you proud growth look forward the every in is periodically operators and Louis, strategy Salt the for to U.S. we growth we Houston come number holistic entire our including mentioned, visited East it a progress. to

you, Mike. Now, back to

Michael Allen Flores

Thanks, Chris. investor call and questions. We'll now the analysts open for

with Palmer is Now, David David? the first question from RBC.

David Palmer

do one some could some If was International you actions And refranchising but excluding strong Obviously, and just that. Growth Thanks. by for this. clearly, getting in profit dragging the you're Lead, growth, one-times, your very on speaking other I to and question facts mentioned back Kevin, was licensing in [Foundational] High foundation and markets. (sic) held U.S.

in these impact was I think originally, the XXXX? that flat effects, you expect refranchising and the thought actions. How the should drag, equal an perhaps from these starting third licensing Is expectation? quarter tailwind still much EBIT and then Thank you. in we

Kevin M. Ozan

Hey, David. Yes.

me and let explain. try So

there's and you of a in these will next of As mentioned, few refranchising be noise because transactions. quarters for there lot the quarter this

that is results once things fourth then, these I'll you. in new comparison little to so So rough be we'll buy we've what to the And a said level going developmental of in have as essentially XXXX. basis shares. because of the Until XXXX. as XXXX we compared we it's on of quarter of say a One franchising you that that, that, because proceeds won't relatively to use XXXX top call on get we have in, benefit a going two is in is the them back the markets all on we get what kind at wholly-owned of against this be have what of norm. beginning is depreciation received when these in in markets gotten kind Once we've transactions, I'll we've said beginning neutral EPS you lap XXXX, we through that's license will you

up term I'm shares to EPS we've level, the have as bit relatively we'll because calculation. more all saving neutral near is the the a the given be into flow on get wholly-owned them the effectively On in once these And down will free royalty built we're if at little an and in those basis, a that we're markets immediately so the will, you a capital effectively we'll income as than from be buy Operating near the be income operating DL-ing able outweighs income a term losing. the income it'll that accretive DL. basis, cash because

So accretive immediately cash free it to will Thanks. be flow.

Michael Allen Flores

is Senatore question next from Our with Sara Sara? Bernstein.

Anna Papp

Hi. actually This Sara. representing Anna is Papp

a terms draw large is the hear when little of what a So about of profitability? third upfront doesn't talk you of difficult you. to require on your One investments. it's And companies make fixed of profitable things you speak and, some also, some enough we Could much conclusions the little in what incur delivery, the even delivery bit to do parties of that impact now variable kind bit about it's comps? to and in have outsourced talk from about sample profitability costs and Thank to franchisees as can we you private therefore, kinds anticipate? a you

Stephen J. Easterbrook

I'll at a Right. that have one. stab

of I enough early be clearly, delivery. to getting encouraged we're read So mean, by an

we've has lead pursued have on meet And expand on working are around wherever the a correlate pretty getting to partnership been so help yes, one of number very looked to it's well What store pursued their us. has well, we've our actually not UberEATS UberEATS. world. trading this counts coverage doubling-down a per between the partner our primary surprisingly, of we're day delivery – been awareness And rollout the finding good And effectively, they've two aggressive consumer been program. So does ambition is, as to early this. And we per guest of as highly expansion results.

comp more a and the into on higher going awareness restaurants actual the not in it's buildup day. but I'm the offer customer are able one, per been contributor effectively raise take-up have that getting to So this the markets meaningful that delivery. promote get

XX,XXX. X,XXX out make of just about restaurants sure we're saying. so we're I I We're want As in to guarded say, far what

some go So get but to system. those across to the it, offer global got clearly in scale the further meaningful we've it's ways that

is of operators of that would that the In terms some way the the take between a party we're – third margin. commercial a because that with operator obviously, our business it's relationship vast profitability, ourselves of important our and is third majority party incremental there's working

So if to incremental. more It's we're well really not we we need we the us. that, because part business, as we're encouraging than of more be certainly finding And to well. up than of actually. data that for certainly this beginning now know really, scale half that is And are that reason collect the consumer

use So stream we and business this very can incremental information. evening fact that in And awareness actually more daypart information, the previously those get of again we're know do the opportunity, one as XX% in the of the from is And is getting get that to we But there can business offering repeat business it weren't is we into. encourages tapping which we up visit are that that than us. also of is revenue repeat focusing comes our higher that an consumers' fact reinforcing the well, we we're strong things internally minds. further on overnight, delivery fact what

It's at yes, know this. And as enthusiastic, And as our are to to a go operators incremental So, we're it's profitable. we we, corporation. are certainly hard business. continue looking

Michael Allen Flores

Sachs. Holthouse Our with next Karen? question from Karen Goldman is

Karen Holthouse

is that by those what then, that you about talk see when of store A kind costs question to in And question. seeing months covering taking for you at Thanks. able actually would if to making of we're year-over-year expectation upfront new Or do Thanks six that and initiatives, margin into away? you leverage the the go nine pressure? costs? it you is you're U.S. so, where then margins be those investments the talked some on behind about level that Hi.

Chris Kempczinski

Yeah, hi, Karen. It's Chris.

being certainly, talking trading There the labor that drag is we're you're but So are that the training some results related commodity to seeing posted, you're is inflation, that was about. that in the biggest seeing right I what investments the now related to labor we made. facing primarily just

labor think like remains one going U.S. for the of I just that pieces of in seen us forward, be what the look long-term In terms the does is to inflation

labor ticking And X% so, has roughly with we seen inflation nationally. unemployment been have that up

In as going where on minimum laws well, addition, legislation that's local increasing. are there's wage

rate So require headwind, could it's a would we've unclear faster now, that historically a long-term than But that seen. growth where think what which just right be I goes.

training, in across And us, those certainly that abate need the are the would one-time keep for we're to make U.S. on I next think months. our longer eye is six the to that investments inflation investments we labor think now XX the I just right on term,

Stephen J. Easterbrook

Karen, all And Chris been get on very conversations that of getting a guess but to execute I is it. teams those the the right. but solid the mean, team that Chris we've in term. on trend more of right. back you've having more deployed impacted. medium execution, seen order because in between because mindful have the comes an stretch kind to hook customers then is the this the very well a here shorter-term start, great is longer recent level have, right our than out we've important it ambitious, in ambitious you'll this, of invest And seen P&L having a have Owner/Operators, gap with plan. kind we've it have get we've execution multi-faceted tone I'll just have I built the the an broad-based And And details the plan. clearly a and just we with is not really with management a restaurant plan is the got got experiences us of catches wherever the UK over and Canada And great and But some plans. plan. we payback perfect a Australia, little where to execution also who we

at. I focus. So it, the to doesn't but I'm not And, about primary It execution is as blasé right this our say, comfortable with mean us. where getting is we're unexpected we're

Michael Allen Flores

Brian with from is Oppenheimer. question Bittner next Our Brian?

Brian Bittner

you Can for would talk helpful that just going details Thanks the national provide are incremental you early if States XXXX? your United a labor investments little just Thanks. to more a about the Any margins that, you time strategy to and also question. to to are at in your could And address from strategize, franchisees addition value taking expect platform be going you're bit what-not. making when Thanks. U.S. us. value in on and in investments strategy declining store-level the launching how

Chris Kempczinski

last, have of is on in Sure. to no our as we value. we years investments competitive as be Menu, Well, to think it's off we the to U.S. we the we that have call on program. that Dollar we rolled things against on three with four value but also value, surprise competitive we since to can't means the that win franchisees over a And And value. needed said our I don't have it, be or lose one weren't

talked this Owner/Operators, of what being so and you're our certainly is think one I everyday-value will fully pulse of on value us $X don't plan us will that be value It's $X, next a focused And investment holistically. you program throughout When been in is that $X being And asked at and from to competitive an talk with surprise about piece with the for the year going that of program has it. looked as deals written year there. our be is really that. competitors out to things result there that that going we be then see about and of it's is also the a about near-in points price to any

efficiencies on around that's restaurant an captured efficiencies being side, other also particularly the And are and there, getting getting we're side, value so significant investment there made efficiencies the while we're being at on that the that that some there are is level. marketing

plan. a is look we at in fact think think, the is P&L. signing blended And things some were almost of importantly, you the by at I this investments And of up value so they XXX% best testament comfortable that most all it Owner/Operators on our that a the offset the with that being balanced the when basis, probably other for felt

Stephen J. Easterbrook

here we local muscles been And up the is support for Chris, the the XXXX. I also initiatives on it's for commitments to of signed have reduced, national support, putting play national the that need think the to program, because at us noteworthy, we're enter think the to that's some that exciting is somewhat I value to so which is

Michael Allen Flores

from is Next question Deutsche Levy with Brett? Bank. Brett

Brett Levy

Thank morning. you. Good

daypart and are once faster coffee in terms started about attachments? traditional more if you What seeing you reiterated you. terms of program? how overall obviously than And, that mobile can it's could, order in how and again breakfast, doing Investor at of Thank growing the your in You of March your loyalty versus Day that to What in-store is terms comp? afternoon, it's purchases doing and much well. share your talk I

Chris Kempczinski

about in think I huge part, because $XX in mid-to-high-single a the billion category. as we're growing coffee, category. It's business a a U.S. it's Well, it's excited and digits

and the there. we're It's So we're under-penetrated high excited margin about category.

the So growth it expecting saw comp, we McCafé opportunity really additional McCafé we're versus our relevance. going we use on where get say the the built to specifics a years, line as McCafé the a item, platform just the to as in after product few benefit next not compare did about We're out of look think getting plan, as brand our those business. that, an certainly, has average we QX rally by nice of was get would we us for really of over how lot into I us And but growth.

it. So focus of we a that. we're get excited good been think to question a It's after for about really have us. We opportunity

consistently forward, focused key going this haven't for We in a the past. on it's us. going And area be

Stephen J. Easterbrook

you play habitual at casual casual digital out talk we about we because drivers look compelling at converting committed, you I'd build plays and those if to alongside we we we it's who plays from want finally, coffee there, coffee is to such a also and that against global will breakfast we different markets. a more strongly capabilities the plan in different think When overall when stage loyalty clearly, velocity advantage But CRM, encourage a customers back McCafé really retaining in the against look talk the a say as coffee, just well at Brett, consumers. look well about, food-led we key regain, customers, when strong actually that about some and customers our behind on of those coffee at you velocity have. Then plan, often. retained more snacking the the purchase, category, know perspective,

McCafé coffee countries, I I in part one we a major our but forward. of say markets different each is their all the go So has thing as as that would said, plays programs, development of stage of a those

Michael Allen Flores

is question next Our Morgan from John Stanley. John? Glass with

John Glass

very SG&A. Good morning. on much. Thanks Two cost-related one the questions; is just

make to spending confidence The all? they've goals technology, into asset business grown does at the you have you more quarter. and excluding that next gotten out on to China. those goals Do component or was ongoing It's Can the example? of achieve of a there about markets, can laid refranchising sounds little has is reiterate the that dollars in and an you this same gains other earlier you nil like overall year. still you've few as maybe the money been for XXXX? hundred that as SG&A the quarter still years million So couple piece you go what is Does your effectively into it that you should complete? put in that's think a still over trade heavier Or that if it further a been need like this are out changed sales,

Kevin M. Ozan

John. Yes, Thanks.

now, with completely start me where with What expected say we year. the I'd be Let is on right this track G&A. to we're

the in little that, to a As I said still year down at the beginning about year. be constant more year. we expect to currencies. X% this Having said X% back-loaded to of be remarks, expected probably thought it the We in probably down for about my X% is we than

and significant back-loaded. refranchising what achieving partly of also we're little in more our is timing from That's running seeing increase bit significant maintenance, a business savings the is the being we're G&A. a But it in spending. savings technology our significant we're our So by seeing offset

net to call our on and, same we're savings G&A, business. the maintenance time, at focused growing shifting from more existing the achieving G&A I'll what investment we're G&A of spend So

we our today at but of we're all a overall, better feel track point. G&A, original this on lot think kind with I plans So about where we're of spending our

Regarding gains, it's a the point. good

in We you'll license likely some some refranchise conventional won't International the much After XXXX still of that, the of think as gains of down Lead. markets, to our see the I transactions. continue have go refranchising and that we in will a bit. U.S. little as probably

that as couple But level be that, the we've will to maybe probably will and exchange down won't just We the have in bit. have a years still that hands always kind restaurants business, always last we restaurants likely seen will some. so optimize some we'll be our in After of it normal little it there mix, course of that, XXXX. go

Michael Allen Flores

Peter? Our with next question is from Peter Saleh BTIG.

Peter Saleh

taking for question. Great. you Thank the

restaurants could of Just Are comment and Future a U.S. Any speed of be curious system? you bit of in would service Experience moving times service rest comparing ticket sort how of faster speed on slower? they on or color moving of little the the the the other if versus they are helpful. are the

Chris Kempczinski

in not call And slight time. do et the that the so well, uptick we say typically experience in see cetera, EOTF, to whether we're is, crew deploying, as initiative whatever in all, claw times, of five if I'd restaurants most, a expect or more typically some it, over service Yes, of back news, what see get the order so. as then, we it's we menu of the certainly seconds on is

with it Future, of customer you bring things the I introducing for think is to from-to brand. that we Experience Future curbside, that all us, the start in because difficult as when Experience it's, the one sorts with of the for the interact the of of you new really to on the ways makes do look at

the experience. past, maybe they going go just would drive-thru see they so into great restaurant frankly, the the And didn't through in because, as a

restaurants experience service to table you get can there. it's where an the go updated because into Now, they want modernized

And what think, customers new difficult choosing I is that so it really, interact us the brand we're ways for with of seeing compare. to are the with Experience it's makes Future that to

the significant customer look us, And satisfaction. in on more at look satisfaction. of metric overall what is think five customer customer are relevant and for after the improvements three seeing satisfaction prior EOTF. at to improvements we to there really, points we're EOTF I We order

they gives they're and that us, the for us having that are deploying a reassurance that with So EOTF experience. initiatives enjoying better we're

Stephen J. Easterbrook

I is Chris mean, right. absolutely

providing example you're you've absolutely want that around really service. family want choose I rushed, be broader and providing fast served. just spot-on. take everyone of the customers putting a time, is customers, some alternatives. service to whether of how they how think same choice At part you they wants we're to faster and, pay order, we what and and for and hands you and kiosk how got the control entering philosophy maybe Experience the curbside restaurant Chris's just to Future want it's little more dwell therefore, is in a not the of that Or be time of more order, to our on with they're ordering. the they those And

it's experience. enjoyable a more So much just

can, Chris is noticeably So in confident in more customer say, allowing therefore, we We're is then Experience the And in McDonald's. to the And, is advanced I that choices. as rollout of if where I again, the to are this they have you surprising. range see the U.S., but, encouraging, they guess have. of experience that of the has we way satisfaction customer like, the higher. plans And not which Future, the begun already self-select

Michael Allen Flores

from next comes Our with question Farmer Fargo. Wells Jeff Jeff?

Jeff D. Farmer

Thank you.

few so have and the Just combinations noted you aggressively $X up a more quickly, McPick regions XX and of options I on the recent following think, value beverages. pursuing, $X already U.S. calls, been it on that of was

of have the to if into XXXX. anything rest curious potentially, regions a same-store we performed could from we system get I'm be can out-performance how on and as us the relative that what of those magnitude sales basis just about, tell value So four to three seeing

Chris Kempczinski

Yes.

local a heavy with you it. element as know, year, was this to think, I there McPick, certainly

we would hit, pursuing price had the selling they that points items also different regions the So they would for. different but, both frankly, be strategies, McPick that

point trying we also think is lose the an we win do the to you're though, In that. not to Again, we're opportunity And so just is can't an on get making, value. price which accurate but one, you're had that about it's still value. we more for value, point, the that that comparison think competitive on on item not general, to I was what what difficult where starting because point price it's but at talking it's

done plays driven at that local that so marketing be level stay investment us where consistently we the And I the forward our for drive other really can is level, and more forward And to think in now think earlier be is on thing, you're seeing as than call, strength I standpoint of value. the think going mentioned going I which competitive really going us a at is to what going the national from message. I from communications

Michael Allen Flores

is Will with question Our next Slabaugh Stephens. Will? from

Will Slabaugh

otherwise. I franchisee seems base. question had to that a Yes. push both as naturally base on referenced of a meaningful and Thanks, improve, guys. It get some you been to an result a the format required franchisee U.S. to earlier, consolidate to or fairly there's as aggressive EOTF investments

the and some may about give occurs? over that current franchisee coming update you're base an on us you can change consolidation So likely this how how thinking as of domestic years the

Chris Kempczinski

of of relatively what really one, U.S. new to drive. the highlight McDonald's, is getting know being so I'd I things in – been a one able a tell to terms And has that you Owner/Operators. impressive our to I'd think me they're Well, very Sure. for they're it's say group

so the seeing results here. in that And you're

and today single view, U.S. the all of the system. been Owner/Operators certainly remain system I in has the love every who's the currently would with my one point to Our in them for discussions of in

base our we do said, different. to earlier, in And restaurants change it no, that not were restaurants the performance. franchisee have concerted is better the effort point, of so expecting around there But to. And as type we U.S. that is consistently running said we were And, we the the foundation. vantage as to said, have you expectations look from try or running

standard we but plan, At one ambitious U.S. level going investment. it we pretty, the that's is same exciting require been one really outlined step have in and And to has set is performance think growth for we've what so what a the the is time,

transparent a time a seeing put exit investment expectation, you And for the very so have us, to together, are system. an two are would those conversation of as we're where as you together operating deciding a some certainly see Owner/Operators sorry go, And expectations. we with that set is folks think performance to rather just are we good I put from while now we expectation along all

today in to I system large is be evolution probably a franchise to as over next think So some the talking that couple U.S. same going this, you of it the see to but going going see we're think continue years, one of about by be few and years. I we're the

Michael Allen Flores

The next question is Alton? from Alton Stump with Longbow Research.

Alton K. Stump

good and you, morning. Thank

very or actually walk you of Just share pizza you're you the early, to or gaining of whether it's in still of but that guys it's delivery? course, the if with roll you're think from certain can otherwise through delivery, if as any rollout it's there's if go back a categories, here as result the U.S., what casual finding to

Stephen J. Easterbrook

see a growing. just and And Asian it reason from I we've such with certain only the this we trends, in participating. guess weren't already markets, significant consumer and is Middle apart urgency could given market, we societal trends, addressed given is, Eastern Delivery

live around or may a little McDonald's. world, I but our you of me to entered six across three could five customers more think most with and we've of mean, enter, for a So but we're us, late have competitors miles heard before the within possibly other muscle probably match. XX% our I than top intent markets say

but than there lends not therefore, no is think business to to itself other on that that, really we frankly, the global visiting restaurant more are. And just we well the of planet population closer So, local that's towns. results We're sort their of their we're are We're it from the having delivery trends also college great younger seeing? seeing appeal to certainly the McDonald's. McDonald's local What some consumer. seeing around

into evenings I we a times typical between so orders, say, perspective, it more slightly skew overnights. restaurant. so check a daypart the somewhere X There to check be in tends group X.X see we from to a and average see average As later,

just a we've And stream up line. learning beginning for clearly every the packaging, menu ahead opportunities little bring around wiser and knowledge. because around the potential than So is be with and we for onboard other opportunity to us. onboard, it us further experience revenue that we got each an innovating every is really week the every and and down of different market an yet to one, business day innovating we're previous the items, this us. incremental market also is now we've business bring building we're bundling It's that I incremental think demonstrate to an But us

let's was, view our into get game. the think I

Let's show intent. our

to we'll us, as goes the it's then Let's probably of us you of move X,XXX of to XX,XXX this the mentality learn on. can really north expect perfection I today fine-tune restaurants continue as to over But quickly, by can it about And say, we continue. encouraging see this where kind expect from trend year. time end and progress and, to

Michael Allen Flores

with Our Matt? next DiFrisco Guggenheim. question Matt is from

Matthew DiFrisco

market the the same-store curve store? invest of we U.S. to Thank going into look U.S. already a I period labor a talk Is at at experience the to you. the I I'm with sales Future, out, waiting flow-through pressure? sort it six to pressure the been seems or have the have that leverage like to nine-month you in as labor that is markets to that margin Can the things little see in Or comment where regions of you roll look now in didn't you are introduced I beyond said front about some are follow-up and yet then this were it this the a you and labor pressure. of have of just it's Experience bit question dynamics if as far type of that to with manifesting just respect that sort the margin digital the faster for curious deleverage? International it

Stephen J. Easterbrook

our is I'll and the that's again I Matt. add and what's guess, segment transparency business. we just U.S., out one we fair start, call to back to the accountability because of driving wanted Yes, did thing we then texture new when more but the went can Chris to structure, to increase so

at look, example, International So all the same rolled five the time. out Lead at markets, when not markets for we

had two margins. or little therefore, one end, if that pressure there were So, the a markets of more margin on couple was still really it, hadn't because who they at a strong markets embarked feeling were but front

can markets got segment impact So, that blended result. five see, of as you into kind a

being while it's part segment is looking we've ultimately, some there's to our some think more are responsible anything business, blend heavy to one that's demonstrated cycle. I of long-term. then going market like spread would our, through of the said clearly, and And And, markets with as competitive fiscally to investing this of there's there's leaders U.S., are you we as other business advantages business, no Here, business, done geographic the into. the if we this the this way impact, a of running for are we're as to this believe, can of and, therefore, investments of yes, we've a add. doing. But, shorter-term but own us if we have want we're that job the if what get it a manage But Chris, to do certain to properly, required its that's lifting the ourselves keep

Chris Kempczinski

in we maybe just to initiatives XXXX. going give And have Yes. that of mean, a think to the concrete a number XXXX, I out as I market example, are laid hitting be we

offsite to one six referred on be they it's we a supply as training then a is literally standard. our and actually really on over we of this it's the hot through. of training very training sometimes the training we we and of the and of in-store against then grill restaurant first convert with all execute your off an for beef. of goes one right on none biggest do curriculum number the market, to, it, call we when into those the high a or spent take the It's the of off But have an time is operator it But chain. at to ones, that coming as the going beef that's out counts All platform that operator. experience. we required bringing hot single to hot grill members entire we When make crew implementation, intensive curriculum now, both we're goes revenue-producing. really is, grill. grill to it that every that's starting training, The off fresh the the with that have a we that sure actually off first thing that sort bring fresh One hot actually a labor onto regions through rollout And week think go

just curriculum that's at have on have a one but preparation that's of that that what with of going example, and a short-term initiatives we So obviously number the type training burden other similar restaurant. done needs puts be the to it

Michael Allen Flores

Greg? next with of Bank Francfort America The Greg Merrill question from is Lynch.

Gregory R. Francfort

you driving And just you about think's I'm European I heard do a and sustainable guys. that we've Europe. of in from of how that is? the maybe talk consumer? what know and just more strength also out some your Hey, generally suppliers bit Can little wondering, the industry,

Stephen J. Easterbrook

over to terms Yes. uncertainty I see picture, a on consumer country talking, depending Thanks, the metrics that of seeing weaker consumer bit Greg. in a as I of it's of Brexit in the continues. get degree. UK certain mixed mean, somewhat little We're nervousness we confidence. which the are you're certain guess little a a confidence contradictory and there's

one money unemployment there's a pockets, in on we I more a into in is, reality headwind, to going let's is consistently, of every think in more see a of somewhat for only any and guess share better our going let's picture. we attitude there's of we're we're growth seeing significant Italy as our markets therefore, the metrics the overall. and same these is and fight end let's Germany mental mixed for seeing or approach take markets. consumer and very typically think declining I either the be market tailwind, the thing France, peoples' do growing single overall, having strong a losing positive modest we're to But right all you're cycle-tread we're stability one putting across make assume in be which not that to sure And, as is major is to nor battle. certainly well. a society continues either. do And of us, kind market of winning this be these and customers confidence

Michael Allen Flores

from Our next Jeff? Barclays. with question's Jeff Bernstein

Jeffrey Bernstein

burger sustainable the so, much. historically seems it players U.S. been even to has a recently past period. like category, or Steve Great. that sustaining Thank you decade in maintain very largest or for know been or Chris, I have most look difficult QSR I it over you accelerating the momentum. the if guess very And back

make Just most So changed I'm you clarify coming do what QSR maybe share an to has recent resurgence earlier? that's just changed maybe led wondering maybe understood. the think in QSR? sure Or I from accounting standpoint, or across is And Kevin, could broader I the you dynamic want you from to meaningfully. then, think where this just that's you what said

Kong shift. pick-up the with XX% equity China, said Hong You

going make of you through what flow just this and be line going Just rate. want that's earnings starting that's should as sure, much and a Thanks. run quarter to we think equity think the might or how

Stephen J. Easterbrook

talk have at not to growth, successful looking comp on that build growth hear the was looking here's ago. give that, think sustaining depend platforms markets, you people the ultimately, comp perspective will cycle. think, quarter's of and more a I a seen what and long-term is the interested it in couple next that the same I go comp mature broader And so a you're will that is three about you cycle. what our – a we're I we've short-term not grow at our on of year us Jeff, in of multifaceted a all in we're if And give way business it I'm

You don't important more but it. build Experience for consumers us, Chris, are QSR in U.S.? somewhat talk the of that that are to certainly our get as platforms, can sustaining we're our but, dragged industry to maybe platforms the U.S., into building casual the we brand, convert think And the Future, Chris to delivery, our digital the we

Chris Kempczinski

Yes.

proposition you've And doing compelling sharp put market, experience, the we're customer, value your forth, think when that, that when I so, you're that relatively what significant just flat got a offering, I on to with you're a is with that offering gain build think it really the you're but is seeing the you're share. really the to that food can proposition you

we've And seeing, so, forward. widening what gap the certainly, I'm three And going the the excited very comp in quarters. been last has got our gap that about pipeline we've comp over been

I of think as if I we at see I we're on we but proposition to us for that the going to performance, my it's us any demonstrate But the couldn't that execute sustain why and, think don't opening to be with customers, I stay sharp we absolute said comments, again, the offering execute. key reason really it. is

Kevin M. Ozan

then, on Hong line And today, in earnings franchise of net royalty XX% up then we'll is for in pick of the and forward, kind operating revenues, to earnings question Kong your affiliates unconsolidated how equity Japan China, and we'll other up within a called down their income. for account which Jeff, regarding we our of similar get going accounted it'll be

China bit income. it, were operating but quarter, you of X% our of less – remind beginning Hong of what quarter. I regarding that be is remember in total more beginning then, I guess, than I this guess, beginning size next it'll Kong and And what would really a that's little So consolidated

Michael Allen Flores

time So we David more will that David? for Tarantino question one and be have with Baird.

David E. Tarantino

Hi. digital Good morning. My comment. your question strategy. And, maybe on you can is Chris,

the next to think had move and early through I it's but in talk I specifically, that restaurants mobile over that know do order users. you adoption, you seeing any on where to planning time. database lastly, and metrics the about adoption can days, it the Thanks. a around there's building then, I you're can there's digital pay adoption expect rates go to mentioned share you've of what drive and you you you And that the longest, year? wonder you're if as

Chris Kempczinski

innings, we to digital, Yes. I really start the innings say a in Series, we're Well, early it. honor in nice World the seeing, so of but in of early are the I'd still think,

downloads. momentum, XX the roughly that we've had there. a say So it we're currently would who active that primary And I million strong users, the we're monthly benefit basis app. in offer million X delivering are which through on is we're really we're almost meaning seeing seeing

out rolling getting what then restaurants together and operations and roll now really right. now, offer do we're pay, we're we're of the our mobile the pay. point at is the on order order this mobile with mobile be As with going ability out power that in focused to bring order and pay the is doing mostly the Right to

when So up, food order, curbside they bring the understand to do how getting, out how take for example, order a crew do to they and the that go comes the customer.

the that I'd start now, we're is as deploying happen it, usage. then operational XXXX much a of in of becomes more us make we going spending ready will future out do for it but of early it, and think and flip Yes, switch we're pay. mobile there, significant the increased say We we're sure on But, with right because business the from time make certainly, other opportunity ready activity to We the innings. we marketing that we're we've the So, drive the got marketing muscle the it's when we're lot expect but still order to it to would handle on what really a to we've in flip significant some a part on switch do sure that there. and really learned want more comp.

Michael Allen Flores

few So has to now, closing the to of I'd remarks. over like And hour. reached who a Steve, it turn we've the top

Stephen J. Easterbrook

our Growth performance. Velocity the in can proof And working. Very Yes. see is you briefly, strategy our

plans. still progress, lot and day. you. you will in, we on potential And around disciplined a of on know energy we good organization you full of our us thank Thank that entire to our made continue deliver we've dialing as allow execution the focusing aligning with a lot more to Even our for We'll have a wish I do. that,

Operator

concludes Corporation This conference investor McDonald's call.

You are now free to disconnect.

McDonald's (MCD) 24 Oct 172017 Q3 Earnings call transcript