MCD - Earnings call transcript Q3 2018

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Operator

Hello and welcome to McDonald's Third Quarter 2018 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. [Operator Instructions] 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,

Mike Flores

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

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

Steve Easterbrook

third continue remain as Mike. our business execute in to quarter, we holistic Thanks With in morning. Good growth we confident aggressive another an and solid strategy. the performance

restaurants day. substantial and serve XX making every in innovating progress experience are million for the hospitality We the than more modernizing world, enhancing we customers around

achieved in As counts comparable top-line, guest a and result, we top traffic share our our XXth growth markets. of sales quarter of increasing our global most of consecutive have

a business. are in expertise digital new of They have rapidly businesses performing the local our the restaurants. the markets in China month, members in makes has our market in is leader growth to continue at restaurants and other in Kong our XXXX and menu XXX to Earlier the the consumers well Mainland over a modernized is up system to in digital its made our system. have moving of service restaurant two McDonald's the platform. cities offers with existing the It recently we at I business steady in marked top improvements was team some open we image largest for largest change XXXX of and brand year-over-year McDonald's third the top a have visited new our at has we largest Canada members initiatives, McDonald's team, the our In satisfaction running five McDonald's we and Canada. business. understanding is to of refresh and strong few adoption The as bakery the more such years. to noticeable Like are the in sustained they I a least aggressively as gaining over years. of I McDonald's and run program in developmental was see in international restaurants expansion boards, Canada restaurants Many Vancouver have quarter, visit digital the décor, many since displays Customers' impressed see delivery. ambitious been momentum gains standards market. highly market. Hong of making the how driven China of partnership drive first highest markets the Canada set customer in the our about the full They in of modernized among During and exceptional to created nearly continued customers. McCafe ramp the a top could appreciate drive this and crew well fundamentals meet to China, success. to expect most on hospitality exceptional The August, international XX-year in competitive The growth for growth of is environment. over enjoyable make was demonstrated local commitment, that deep They China's crew next with even by year operating scores. excelling licensee. of the for XX% increases each opened personalize in continue also transaction phase McDonald's managing successful great leadership that delivery of markets with positioned XXXX also was operating XXX China with

have franchisees integrated execute teams and aligned together working ambitious management to exceptional We plans.

confident momentum will we continue significant We enabling in the to to the advanced that in rising and warm McDonald's food, as are offer forward market delicious restaurants most The strategic U.S. our sustained largest undertaken continued ever transformation achieve move platforms to the satisfy us system. hospitality with expectations. serve customer

in is to in customers our the executed during before, that as projects our at The now. number U.S. one when our the taking pace are restaurants already in hard experience and discussed team a franchisees are have our are his completing our end our At track franchisees we current are another continues the ago modernizing our of an these have project we the such and is XXXXX the improvements introduce history. by of this construction markets response McDonald's restaurants, on program the Experience line our in as on once. undertaking initiative strengthen to a work U.K. lot and pace of Italy the an of U.S. President, is restaurants This that many XXXX, similar other quarter. to U.S. we was the U.S. all completed. As maintaining the restaurants. XXXX from over team still enhancements we with Canada. right seeing but growing largest ahead, years expect Kempczinski, confidence, Future Chris They encouraging with This several to these making complete aggressive

to As more sure adapt. franchised structure to making we're we've evolved business heavily model our operating continues

the Last and continue enable business the also and across will the lead Foundational of number level our to us Chief moment and Markets a Developmental his franchisees. who to is most to to provide we success Borden, and Doug organization. month, markets. to We President International our licensees best will right want many take and we and structure him President January, of I he's Doug will leadership XX-year international Restaurant of upcoming growth support our focused our all career. leads to his for Growth This and It appreciated Goare, some will ensure of These of our for that share International scale our in complex retirement. structure License acknowledge in licensees. be developmental Joe Markets. who intensely McDonald's Officer. of Starting brand make operating will his Operated our we'll markets. business. President Markets, now changes High have our Markets, of Lead done announced and growing Ian now operates innovation a our also to thank International over solutions has of contributions his partners on our other counsel Markets. contribute developmental made are Erlinger, We've valuable

will Kevin the the some financial Now highlights performance discuss from quarter. of

Kevin Ozan

Thanks, X.X%, sales grew pleased our guest reflecting while business our sales for top counts Steve. the We're in results U.S., of counts with guest markets, increased quarter. across of all segments. declined quarter. during Global most strong in performance the positive comp the Comp international our

of As Steve in international leading mentioned, system. performance our top markets our consistently driving are the

comp few quarter The of positive of resulting growth. sales just to strong, has volumes XX have XX the Markets Lead quarters here XX delivered X.X% in around now In quarters Australia is they consecutive just sales up Comp growth. quarters their and quarters as addition of history, comp growth. comp this guest the sales quarter. Japan of consecutive in XXth in illustrate other to from continues and eight their highlights delivered for France enjoying momentum. count success, The XX-year sales Netherlands consecutive International highest world growth. in consecutive monthly count a experienced are Canada's momentum consecutive the comp sales sales of U.K. remained their guest

the segment contributed addition, In within market every the to growth.

ILM and Experience Future, of segment continue they see including on mass reach value, the platforms, critical the contributions or digital. higher delivery across markets EOTF, from multiple to As

introduced of All Day platform. a to markets all-day time and The available the day. menu in favorites the In enjoy Breakfast size chicken now potential brand. in sustained of an of burgers, recently this positive demonstration addition any favorite of of fries, well-established Australia's McDonald's of are the limited segment XXXX, can a their scale results Customers and they launch

average grounded new our the sales afforded favorable comparable customers for choices mix value to higher fresh A product increases. delivery of the were contributed importance The and and mix beef Turning news, XXX% including price quarter menu plan of result average delivering the also increased pounders from Tenders, U.S., to The due higher and shifts of in growth. sales U.S. through to drove offerings. kiosks count a deployed shifts check U.S., comp guest mix menu the X.X% our to glazed is higher check. Crispy check product across quarter. Initiatives the a to Buttermilk self-order

and especially meal breakfast customers looking sales for pleased on our increasing focused affordable remains remain offer, As any as this, offerings environment by offerings. deal challenge, $X positive featuring And new our the for Breakfast quarter some our we're wrapped adopting well a our iconic up Considering competitive, coffee gap visits. $X an deal price. our guest we Mix we're of basis customer to value QSR successful will U.S. comp meal Deal September, XX menu points need call, our very option in counts $X to soon for satisfying a Match customer favorite remains The as menu & around an point. at of the last the talked I We classic sandwiches our sandwich launch price recently for appeal the about core expanded opportunity. X customer in $X earnings competitors. a and further versus $X $X segment. items introducing deal size with at a X On

and for increases X%. contributing sales to markets, the and breakfast items with to all national Soon, positions across return the the value, all comp results Plan inspired back were with sales foundational substantially Growth results. guest In X.X%, and delivered of to comp we'll comp Netherlands of are gain grew Japan Italy across markets. segment. momentum introduce sales customers Growth deals accelerators positively continues each Italy, win geographic new results at up Velocity And offerings a combination lead customers. Poland and the menu us to breakfast. our new region Each the to across sales the dayparts, continuing by double-digit all quarter. A High local segment, breakfast count positive contributed meaningfully food to

to back it Steve. turn I'll Now

Steve Easterbrook

key The Kevin. elements the working. are Plan Growth Velocity Thanks of

have strategy. XXth top is growth Tasty. heart sandwiches as iconic reason the McDonald's. We delicious same in our achieved increase burger our with of core choose the Many drivers The The successful at customers of the of on consumers from taste menu campaign. powerful at our food the step significant also a sales the made France, their strong increase success forward always have ago, are with and double-digit announced market a proven premium such Mac Big XXX ingredients saw quality better. example, striving we And The the in for share, Big to our make a of a year continue where even food we appeal focused market food. to and a anniversary continue featuring we're in during also a more quarter, the the favorites lineup we've quarter U.S. to

Our Previously, colors burgers cooked now order. from our pound classic flavors. addition preservatives beef artificial and artificial you sources burgers switch have This the added U.S. the quarter no fresh McNuggets. in made when Chicken our also X artificial year to to artificial right preservatives, in earlier no this removed XXX% was no we we in in still

be the of to Now growth. Delivery, Experience turn and our let's Future are for proving to accelerators. catalysts digital sustained

choices, maximize convenience elevating McDonald's As to we for are the experience of expanding these enhancing continue impacts accelerators, we overall and the customers.

offer which restaurants, advantage by competitors. demand now coverage, to a have customers. placing of continue XX,XXX substantial over the more in provides move massive customers service opportunity. growth restaurants, developing from delivery We're any footprint, from We a innovating global of provide focused representing efficiency our us over our and and delivery XXXX. distinct end to closer XX,XXX to we With better aggressively expanding the to on growing increase We than

partnership with global Eats, continuing we this are our of benefit the expansion. Uber With

restaurants U.K, end delivery we're convenient a of is the to becoming option. customers the delivery also that with France, total market many existing delivery. encourage competitive. meaningful McDelivery thousands they Australia as The most U.S. sales. experience become this McDonald's awareness the to We we Delivery now we several more and at and of contributor by the of remain raise an to such committed so satisfaction markets rapidly of evolving convenience, of regularly reach X,XXX them Once high. loyal offers top much In the sales strive customers, order delivery reordering to expect We're delivery. working XX% as year, is our increasingly Customer represents to frequently our the remains in to comp as offering as more including restaurants innovating

an seeing are in early and speed orders of initiative systems year We point-of-sale delivery after completing our this our improved accuracy to many restaurants. into integrate

mobile volumes. are the the our to this our protect additional opportunities ranging with at we us restaurants exploring highest our from to new and our the business. our quality improve that commitment app innovation make for growth which advantage competitive of everything is will through Underpinning approaches to delivery We help customers, do for delivery delivery packaging easy ordering that will with efficiency accelerator food integrating convenient maximize new our

our customers in provide by over allows an on introduced to them personalizing of guest kiosk. also to of leaders the popularity time the terms. a of engage menu grow and spend with over kiosks, over restaurants the already Spain, time are which well more Self-order opportunity average our orders. customers have in-restaurant and all Italy our transacted to worldwide, of option through their and Supported are XX,XXX browsing higher with In their We continue new that technology half the France, and service, visits kiosks self-order table experience to utilization ticket.

and our through the Many customers engage deal incremental special offers of drive to markets continue encourage used app. our mobile traffic We global of to utilization increased app. have

and During app. transactions pace of the more the U.S. users, the the quarter, driving doubled downloads through registered

our increases, convenience mobile As their guests behavior. on are purchasing the deeper insights active of while adoption terms this pay base gaining greater and and providing users on their we of grows rate order

kiosk we in Through changes are customers All is notice include will at and improvements improvements service, hospitality members place digital elevating information we we making. leaders, counts. seen base of ordering, a foundational the of in restaurants EOTF, app. mobile us sales menu for The of We've the convenience, these were that elements growth and significant overall especially and the in customers table programs to initiatives. us this guest these experience more our appreciate steady experience and restaurant, global impacts boards of are have are customers helping improvements satisfaction customers. in relationships. are These strategy When to by for to serve of personalization continue front future. crew the as U.S. put And find a the and customers. and business further in elevate new and ratings, customer EOTF our create for particular of all growth upon clear that It's a seeing guest to restaurants, in much which are existing around who build to customer we out those customer satisfaction deepen which in in as all maximize the restaurants the dine giving place achieving both customer visits in. We're our ways restaurants frequency roll by and the the opportunity encouraged we in business world, McDonald's higher

McDonald's across expect system, restaurants across the And year. converted over the deploying the in end of to by XX,XXX year, We the made over EOTF U.S. significant half we progress System have restaurants the including have all of in global the past

Kevin Ozan

Steve As restaurants the of about expecting our projects transforming surpass in this modernizing an original year. U.S. is unprecedented over X,XXX at and to-date mentioned, XXXX to target pace, alone X,XXX

pace, to sales we're limiting approach this The learn have we the expected, the the inconsistent. remains impact in restaurant the lobby a in to quickened we a that when for when a and throughout the counts. and at for drive-through closed move remodel, been example, to also restaurants we guest period a The we maximize large closes and downtime scope than open, little time. business. little benefits after adapt but of for minimize completely a focused partial, on in process Overall, a recovery downtime our As from sales a is order count on longer continue to so has has experienced and restaurant to ranges restaurants period full, our project the project complete guest short order

reopening construction put sales efforts involve execute so our So after achieving are to those seeing expected, we local place results our grand as as quickly lifts communities. that Overall, the processes on we possible. strong plans are we've focused in

and by the in than restaurant as Consolidated company company-owned growth related the margin dollars. EOTF operated offset margins with margins resulting a for per due increase higher transaction as on sales and our Nearly basis to our McDonald's depreciation pleased offset dollars offset partially for the for well points of Earnings last purposeful, I'm in from were improved currencies comp part than more Our been continuing total focused including the positive growth, has a XX%. refranchising from grew operated efficient operating margin margin in Hong benefited from Franchise franchise our refranchising comp quarter. margins delivering commodities stable XX% long-term refranchising quarter to company transforming XX financial labor quarter a pressures. franchise strategy excluding margin after commodity We're prior year $X.XX, Year-to-date, more U.S. contributions out key XX.X% share the dollars the XX in partnering organization now our labor challenged Kong to China, more driven into performance. to restaurant quarter year and costs items. and by U.S. ILM declined points operated for our and significant basis growth. the EOTF, global company the special year partially by our business constant sales, positive a came pressures. margins decrease of was XX% efforts,

company-owned U.S. in the an pace. restaurants accelerated at Our modernizing are

continuing are lower downtime. on a to decline and construction to pay pressure crew combination in during temporary labor to our guest depreciation experiencing anticipated EOTF restaurants In due a of addition margins, the productivity counts to converting

to mid-XXXX. pressure dissipate this expect in We

Moving In commodity third and on X% U.S., about to quarter pricing nearly was increased X%. pricing costs menu for the year-over-year commodities. quarter while the up

in and up commodity somewhat full will anticipate about year. pressures ease basket our We QX to expect be X% for U.S. grocery the

averaged the commodities X.X% for up about Continuing X.X% Commodity for higher Lead X% also to For spending. menu Markets, we the be X% At International the full year. G&A about the down the about quarter that year-over-year. about expect to on currencies the costs indicated to up timing due expected were prices between year, of and the we fluctuations for G&A. our beginning year be quarters to with constant we in still of

constant quarter, for the X%, third X% was through being in year. our in currencies, expect the down For of resulted X down X% now the full year. cost G&A about the to X% We which down to months be cost G&A first

tax rate from U.S. full in as additional the we to end of to tax We XX% we range adjustments tax of our was the XX% the recorded at rate QX effective amounts Our quarter. reform. related XX% the year XX%, for finalize expect last to may XX%, year now down have although in favorable be to

to Turning foreign currencies.

translation the a be exchange full of our rates, would foreign per $X.XX At the $X.XX results headwind to expect share. we impact similar of currency year quarter, quarter, a result which foreign $X.XX. to currency in by hurt For the benefit current fourth in

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

it back to allocation. turn I our I to touch on Steve, Before want capital

as future business priority growth Our EOTF. such drive through in initiatives the remains investing to first

in we'll spend billion that is year. expectation $X.X this current about capital Our

billion XX% to in about per our XXXX $X.XX dividend strategy. X-year long-term by share, equivalent The which As ending return contributes of to confidence we increased our dividend and we increased period meaningfully we cash target, $XX the month, the our for reinforces communicated to $X.XX our quarterly annually. last

Steve Easterbrook

and put of velocity continue we Thanks encouraged restaurants our of experience U.S. initiatives the remain why the We're have momentum. we of international is We of business. and that already by Kevin. the so serve. our drive overview investments makes growth it an sales we the as to making about Most strategy place. future are progress the largest perspectives growing provided markets in encouraged success will that enhance by of customers

our we confident The business but focused to even continue McDonald's is in on right our to committed are execution unlocking System our tactics, strategy that the fine-tune will clearly We greater direction. and guiding potential. is

Mike Flores

Steve. Thanks

for questions. to many questions start back a analysts to We as open people to are give queue. call to one, we follow-up one allows. the and will pound ask for going press yourself remove investor as possible the limit if one questions opportunity question and come please Please from the And you as you have question yourself now and time to to

our Now, David Palmer with David? is RBC. first from

David Palmer

Steve out of temporary obviously people think Thanks. in have There's the change you going of beyond? a Good where adjustments. evolve trying friction this and been think, you're U.S. then, maybe XXXX. into parts on out for are you'll XXXX morning. Question, make I to are that And figure learned lot something which to I and And of

of to that national Just, had I value. to regional guess, shift in marketing summarize, you've out dollars

and have that You these and course, people to franchisees the then, structure have communication want about that, of Experience Thank for of you. Future. headlines what new too. you decision-making And understand about hearing think are a are to make might to adjustments people of I the adjusting

Steve Easterbrook

Hi, David, thanks.

that will into really, that. And just kind grind really U.S. we're at we've in it taking restaurant plan all how of on in it's we're And adapting a -- out works. said 'XX. and where the putting and the moment stage year investments it -- changes As significant continue through throughout to this We're the naturally, that's the ambitious along, at

we've with news relationship much X-legged stool. that good a We our the had is proactive, as positive suppliers. have it owner-operators very call our So always as with we the

how are to. which plan, totally and constructive helpful conversations our any can into we open we're better execute So

looking can EOTF, come at we stronger. the how example, impact of on do regards minimize we're out for downtime we the So X Kevin with X to or referred things to so

we more versus a And effective along And the it's to learning regionalization continue little the the to as the co-ops national and initiatives is there's And investing ownership center. of local the and feel to of we that. learn platforms then, we we're marketing more a more breakfast in in go as side along go regards good breakfast, the therefore, the can there. spend going most co-ops. of whether we're marketing local, So we national bit -- to with we way the for swing our emphasis where on to example invest take to

outdoor think encouraging So not What ourselves this within initiatives keep bigger, of evolving. to doing, and initiatives the what have is helpful even of that, to level menu and customer really initiatives for us why whether for those to what provide actually here service, restaurants -- is the sales I multiple in boards, it's it's does business only just is adopted way and EOTF satisfaction literally, whether that U.S. reminding the is count doing at an we're correlation yet a guest kind the up vision But we're actually plan, delivery, example. between opportunities analysis if now, whether be adopted any both level signpost absolute are. you it's performance table the of whether we the there as which step the clear look major the and all haven't going EOTF, at restaurants it's of international bolder the crystal the their

number satisfaction. and up up do adopt, with the As customer counts of initiatives nicely sales you it restaurants the step as step guest

which -- just something see advantage relationships as being franchisee And clearly, any been ideas our linked. us as we the we success always see can we're actually over So operators. is with has is our inextricably something constructive us. way. you to. time expect And and do, We're for It absolutely wide work continuing that competitive of it a to open we

pulled fundamentally, vision in. I we and the key good that bigger, that. between international which into still course bolder operator own leadership the our of the plan, provides as we're is the for leadership say, I really signpost the elements And a business built through So have think, together XXXX, confident

Mike Flores

Charles of Cowen. from Next question is Andrew

Andrew Charles

wanted thanks. dig the to service narrowed I gap quick in Great peers domestic XQ. that to into

efforts it service mix slowdown as across new in help you construction. while $X the on U.S. then the enhancements Or well times offset quantify obviously guys more the a remodel the initiatives Has been if is competitive broad has grow from the your $X, through of to introducing traffic $X, chicken beef, promotion. disruption to for X this to what fresh being is flavors as XQ been impactful the And to latter, tenders impact You confined the value, can $X new are menu to remaining comps? system? through

Kevin Ozan

I can start and Steve then in. can chime

talk gap me you quarter. say, the I'll of comps, about certainly talking X-year trends look briefly at guess, Let about, current the X- above that of in just started look comp points all I our kind year the this for at, basis we XX and stacks, business. to

those consecutive about we XX feel are fact Steve bit X that. an competitors. that But I an let I guess, talk versus times would a service opportunity. still QSR fair gap think had the of I out to the we've is say little it remain service that pretty I'll good quarters, sandwich of about last XX positive sales times And opportunity. say that comp

a guess, at several roughly the U.S. our around continue we gap. that perspective, have U.S., that, or X.X drag, comps. downtime there it's And EOTF would quarter we're certainly One you if comps that is to in experiencing. on impact of negative give the that one year-to-date of think point the quickly, roughly, components be as closing opportunities I I won't what accelerating know. kind probably look are of the EOTF drag is. real every But quantify so big And still just I we to

were takes how And to downtime. focused we're then, lift kind that we reducing And so time obviously One is we're that us of volumes get that that for long back expect. on would plus and of the the sales lifts to it net be recovery the we getting. and at,

that time projects negative while lift. we complete increases goes be with our left will obviously will As drags the we as dissipating is sales sales obviously, expectation on, start the and

are that's seeing downtime, we markets. a say I'd little in the our bit recovery it trends internationally. seen U.S. a little bit similar But in again, is have that So we've longer we seen what longer international period. overall

Steve Easterbrook

to there. slowed what add service times Kevin as interestingly to enough was for have improved. mean, customer Kevin satisfaction saying But our interestingly, down. has I us, Just said,

So our but do a want that speed just we experience to we enhanced that. as have it's now we the levels see don't is satisfaction interesting improve, fundamental of rely part also know But on that we broader customer DNA. that

in when the into which beef, a you Breakfast, the of over the as and level drive really of restaurants, quality the which fresh as pounder the offer count has years X the such redeem of and if speed should redemptions top-line, introduction such the can which ranges, but you challenge Day the of signature taste GMA the look complexity at moving X the So to help through. drive-through initiatives absorb. with added such an our last initiatives introduction to And and operational has just teams even but back still look All been car enhanced offers with quarter have keep

to ever into challenge we which want how making to as are to how us want can I go to are changing which much of maintain as that we focused are we where that attractive know the we've customers, concept I but time, of is mean, always to restaurants. put are out back on, the take same team a do taste, at going reflecting got the the and we discipline we customers sure the think initiatives into simplification. that XXXX around ourselves I introduce get net

are headway operator that So slightly a leadership, with and It's less particular been to an into our between they us a customers go because dwell and self-order is focus don't They order. drive-through, make kiosk Many time get in the how they are so to there. can has established a now choosing team know longer because to the of I for issue obviously, meaningful that. self-selecting leadership in-store, hurried. feel

you're have. of then kind grab-and-go a If more mode, the to lunchtime, go typically weekday front busy slightly you in as you counter let's that say, lunchtime,

have on drive-through back focus greater service the an bring ambition see you'll So the down. times we to do and

Mike Flores

with Next from Gonzalez KeyBanc. question Eric is

Eric Gonzalez

losing was share the in U.S. morning accelerate Are during of Can quarter? performance the the much quarter? for Thanks and in the in you breakfast advertising on maybe Okay. hurt question. comment the breakfast the How by loss the still of messaging the if daypart shift? you the

Steve Easterbrook

actually at breakfast. suited say, base. changes $X We're tweaks sausage made the in Well, choosing customer such losing little are shifting biscuit, those of spend year local in both at items which through $X that we've some breakfast, regional It's regional. spend share. muffin. any very Again, coffee, competitive some to -- $X make We co-ops out terms a you as did best the some for September, size adding of still of as there their sausage

So was September. largely really that through shift

at tell news So had news some for it's a to sufficient. food excited as see we're food so new whether to a which and quarter to the fourth little -- in new year, much also breakfast we are the haven't am while. early that's I team you'll I. going be But about And this little know

this fight or one, to expansion through previous it's So that share Andrew's any Any is, additions it There's really additions. question traffic. in mean, is no from continues traffic. our the go anyone, and is seeing battleground. tailwinds reality data, I Eric, really units is to just on a market new back a be

I growing in sales we many like-for-like whilst growing, don't the at on there see So sector people can who get are out a traffic -- many basis, actually all.

and teams our and it's a it's scrap responding. fight -- market really a are share you So

some news, do we also to new to out food better reenergize the next breakfast. We've want we we're see which which in got the some initiatives think few and going daypart. So will at through place, months

Mike Flores

Brian next our And is Oppenheimer. with Bittner question from

Brian Bittner

Question level there. menu the the or having strip margin conversations there, real how margins on follow what seeing the trend EOTF up overall be EOTF strategy out when are framing the you're the pressures the decline was you. current Thank franchisees you're regarding the the are kind in you pressures decline store the margin strategy you tell that meaning margin just that issues a you. the are was And down us and time Thank you Can with and seeing. of what year-over-year these just not? from U.S. to strategy, in that, related what whether that

Kevin Ozan

were let piece A talk talk market, there about to will financial of pressures on say, it. labor the I'll few I'll X and owner-operators main say to has a here, overall margins couple related about kind then I'll that One the things Steve was, U.S. quarter. the of that. of I pressures this components

impact and is each them to is of second One EOTF. say in half of be would costs. kind wages the downtime And increase related of roughly due to labor of productivity, about those. was guest the which and lost labor counts I'd

on wages. was half half on roughly roughly productivity, So

of other depreciation to investments. our is the hitting The piece related margins

that incurring you margins. obviously, stores if related company-operated as So we're -- to the I we're and also to about capital depreciation the think know, remodel those stores, is hitting

quarter, bit had commodity little than quarters a a quarter. next X we and more also little we more bit have This we to the pressure, expect than previous had some

because The margin productivity, I represent margin our franchised. U.S. an total the certainly remind operators on pressure does restaurant-level of and and less dollars So fact the this it costs the those labor that margins now our dollars depreciation in that the profitability refranchising of company-operated only have XX% combination obviously, of and of is than also. we've we're all But I'd cost, hit them thing, guess, commodities on and impact quarter. days certain McOpCo the put everyone XX% of these impact done

Steve Easterbrook

Yes.

flow. the the owner-operators grow take up and want cash to flow Just I cash clearly, sentiment. mean, grow to stating owner-operator want owner-operators to obvious, we

with company-owned on puts and same increases that And labor and the designed both major you've the many was pressure restaurants are. built the that. got seeing plan exactly Clearly, inflationary they're lines, cost pressures do Our input your bottom-line. to that of food when X

check some initiatives, seeing example, strong We're normal So to such for kiosk Xx a for between at check. as And being the of average tenders, people partly, I be a down we're average have this X.X average mean, We're having seeing then really, self-order growth we're mean, investments can you it strategic orders. helped higher That average dwell delivery because check. the longer. that's in the a recognized. would somewhere and our boost growth, checks check clearly glazed story. because menu chicken And average higher I of comes as have the making. other

us of for. This not than alongside need be that. give can we're And getting to I think wherein, used We story. each And have would So back other, sort in level. it if day, the that a guest a just an we those margin stronger is about comp a the count X% looking percentage growth check that of growth will average line X% flat top it's at helped to get moving. the both

So which -- our plans. and mindset the that's with we've built

cost All our in the of developed markets pressures. similar facing world are input

is line well into we're international the momentum generate -- the cash count for why focused that average that's the keen so of we as flow translate the profitable to and lot -- positive but because top then if growth owner-operators, more can going minded, we can stay see. guest business. which But to back we're If certainly that's why into strength So growth, a to maintain does going it maintain as what be and U.S. check is that's getting our growth not on the growth. single

Mike Flores

DiFrisco Matt from Guggenheim. is with question next our And

Matt DiFrisco

the with are G&A targeted Thank question of there. savings to than sustainable what is the rates guidance originally My and lower How improved savings for? those you you. had respect

Kevin Ozan

to about to X%, the now said we X% are year be at we'd beginning that down -- X%. the down again So, we of be we expect saying

not this than expected. what dramatically So we in our different year mind it's

certainly full will as next Olympics and decline we the convention costs every our we've year U.S. year taken have a actions then have year won't that we this have related We costs have year We some next such related bit other don't more to reorganization. savings get and little operator to will year. we where a of

we're on set and coming line. is we think our in achieve next I in maybe savings that we up expected year more G&A relatively So bit a or than little year to well this expected

Mike Flores

And our Ivankoe next question with is JPMorgan. from John

John Ivankoe

basically Hi. you. think Two, follow Thank ups. I

bit in surprised impact EOTF First, net XX year-to-date points a little it the 'XX. U.S. was basis me that the

you we of of 'XX the the first sure CapEx and be 'XX was guidance we secondly, to some of forward I interpret would got hoping you CapEx in for of One the CapEx of remain that your this project whether could in 'XX revised or of make CapEx. in would true to And 'XX pour 'XX. 'XX saw in half even higher maybe than that some that that fact 'XX thoughts impact as paying But was 'XX previous 'XX will what allowing want be U.S. doing the CapEx thought I clarification. be that thus or increase into you'll terms is of EOTF by is quarter So the fourth end did some to first be system unchanged? on half then, the

Kevin Ozan

take John. I'll those. Thanks both of

that impact you Regarding basis, more the above point, QX will, said and to a net if EOTF QX a on year-to-date than QX. in it say it's I is drag were the fair roughly half

more basis initiative to a on than guess, a our look at the a to X.X term because say may I So little want safe to long-term longer U.S. of have us -- been long-term I'll there for this that this assume is business. we it's quarter, if but sustainability

every was little to talked is into which about impact want So we've a But an on bit fair quarter that quarter it it having talk on heavier comp a about to to I year-to-date. is get specific don't it impact why individual sales. assume

If we projects. company-operated stores. year our regarding bit heavier that capital, One, this EOTF couple said things at this around expect year's Regarding to little skewed McOpCo, capital guess so billion. our to we $X.X of a look I we know

XX% company-operated completed about So of the projects, we've the restaurants.

company more to operated bit little a So restaurants. skewed

going than anticipated downtime quicken originally to I is that period is in little -- thing longer. a other we're bit bit little costs probably and while little bit recovery say Construction higher a pace. because a we the heavier The would is, partly are a

And some we may efficiencies that different. the so of we have thought we're to achieve not that not were to dramatically going going

in XXXX So CapEx and maybe means is, what similar capital our be little XXXX that in higher for a should bit relatively XXXX.

projects. higher less, cost projects are some the of relatively there will of similar potentially a We likely a little but do number bit

are we've will. be what if to accomplished In it costs more the little projects intense done, a some you of the a in will lower about some will we XXXX done. get XXXX, than but we project got to -- get think our you of easier cost if got skewed XXXX, bit on So them higher projects more

of I capital should the higher a then, have higher. impact in would see to say the probably positive net overall bit to little this construction expect of some than not some the we progress looking expect being EOTF is EOTF but net should So our start again, XXXX be we relatively overall that you half inflation . to has back when And do substantially We in impact cost. maybe impacted XXXX, other the X.X seen costs again positive similar as X.X through

Mike Flores

Our next with question is from David Baird. Tarantino

David Tarantino

year at want come to like about I system Hi. for Seems and back so we've the know been Steve. of on lot to in morning, approaches. operating in you've the business. and your the I discussion thrown talking opportunity past a multiple a U.S. Good big complexity terms years now new throughput for or

and wondering, type little terms -- you just I what speed in the time. of in bit through drive more opportunity can you on terms of of what think a I'm is elaborate guess So if

can or start even can that shave off turning you think it that how sales the quickly and going you on what mean it's the for a impact? of longer And term Thanks. think XXXX whether might You dial you forward?

Steve Easterbrook

David. Sure, Yes.

we the is I system standards world all different, of our mean, greatest as no we I think I is and of maintain U.S. opportunity -- continuing the have to think kind look operations. day-to-day around the

the running with innovation, they technology. consumers cetera. by They They get service. therefore, principle me loose embracing time, rhetoric. that's an expect all expect and That's menu better et hear increasingly and same demanding. of underlying greater a cetera, And lot about we're You'll more et talk forms interaction at restaurants which different expect not

get to whilst right foundation in energy flat always customers operational it's in frankly. the to balance delicate business market, our creating enough a often and a win attraction also So more

model we may what launched car want But have believe service in really from it of improvement back when you put times. the quantification we be can plan done, the to and what a on impact and positively we do able March to year. you don't drive-through. as we even the actually last of throughput can So would remember We're velocity

whether through could enter hours, and it's through be line lot just car off all the away and throughput will carry to So in as they they see in obviously, them turning peak the the they'll that literally way because from just a turn and may the But now going, we that lunchtime on a as -- it's evening we particularly to because able create fundamental the demand. and hours. be hours that quicker can well. just We the cars need able -- more the the to are service, serve early to to truth the we're get meet that beginning just

for -- highest-selling easier your just crew improve training building the actually Getting Menu reliable probably much for another eight of Do other complexity. also We one we we can reduce a do to which you But run another there could the but ease it merchandising. and or sub-teams that the broad number would clearly can a managing different a restaurants we of menu, one. and around is crew consistent on more basis working it. U.S. equipment in of you be how be around elements we'll great What on at in, have continue more invest the technology, to areas them. are to items, tend restaurants. make of our example. more So improve how within How focus to would the have and working say of would seven on retention merchandise? our

So just don't restaurant, of new to day-to-day into the disciplines and initiatives fantastic operations, getting back we -- release them. our we making the make training materials we for and that then as sure teams sure provide overload

a of multi-pronged kind it's So approach.

working and But a need We that think will They're difference. job expect. easy. at job workflow to and it's do I in the that's to for a collectively, crews. a just our we're our I continue a And not do corresponding committed managing to restaurants things ensuring do better to reduction making we to do need -- we better there's what to there, our hard out need introducing be because customers

Mike Flores

with Next Barclays. up Bernstein is Jeff

Jeff Bernstein

you all leaders Perhaps they're Thank wondering it's will the a heard the broader outside for encouraging color more initiatives around of commentary we around in very caution. and this about growth I of moment, or can we China tempering in just and thought unit the U.S.? or whether keen would your largest comps their you And of because have new the like to and quarter in comps you performance is Steve sounded terms growth maybe headlines behavior Great. how or looking I'm just any market that China what accelerate the all of outside pretty what much. be consumer tale hear U.S. this story. around might terms more a provide mentioned and sentiment if have

whether quantitative So maybe qualitative hearing any you that? the can provide anything that insight you're or into might indicate

Steve Easterbrook

comments, mentioned Yes. out I was out with our month teams or in restaurant. days into Absolutely, earlier two partners, management I it was to -- as actually, obviously Beijing managed getting this three a I our and in there there with my spend

you stronger quarter, up the than were for sense three, sales give So guest were up to counts that. marginally in a on quarter China

leading of service, EOTF then, market. as mean in the for us the to XX% use So really there. party a just about which initiatives was that the us those felt And we number the adopted the of original the it, They the of customers XXXX-ish have we both the positive call McDonald's terms third I drive comp. of of delivery, being full the sales now, MDS they restaurants into -- I number system gives delivery of marginal standards. combination to restaurants and are good of remodeled system fundamentals operators.

on I riders, platform the in for the continue the experience dramatic digital remarkable dining they Beijing restaurant area just a we it journey to service where where dedicated created restaurant so could And didn't in would was of them take example. experience. delivery our the more were for Now, and from one in front drivers customers. come and the in-store to just the they a they in it I is mean independently, -- able distract

So be got kind it team seen see a XXX it partners, downloads in rich rate the interaction just our with They about of XX in to our that on database -- But 'XX. million have this we've understanding constructive customer surprise me already reached, new into they've and from openings example, of management new previously the restaurant XXX announced year, behaviors the working ownership same over out of just up and acceleration ramp look encouraging, And therefore got the app perspective. patents. purchase for building this will as good good a continue have relationship. won't long-term also will into years. settled Under you the

in a deep the in consumer restaurant, have prices working feel you so on restaurant the strong I learn And expectations to think in menu keep tier really right positioning we we got in a a us, We again, cities. tier for developed got in position of lower very bit best lower those so the in the cities, more And there. opened more restaurants were cities, X partners as are and levels Tier strong. most the still have Chinese to we tougher place, overall we the a Chinese in lot we and going the understanding cities But, marketplace. it's sales investment

not that So And any sentiment exist the a that -- what also seeing we're structure year China I'm that a was XX feeling some the months geopolitical we've made given of going between to encouraged countries. decision. anti-American overall, the left I new that really also ownership great into issues clearly say the really encouraging is meaningful

locally we're also be a owned seen local think as brand So of business business I global that's -- and a to encouraging increasingly, being a well.

Mike Flores

Jefferies. So final we with question. one be Andy And would have time that for Barish

Andy Barish

should what go at be before your normalized we of XXXX? target Yes. it puts operating kind takes plan of a I that was kind termed any choppy in after that 'XX, out stage just was competence kind this aware look through and and you outlined you've of reaching wondering towards your as your of

Kevin Ozan

the about talk can I targets Yes. obviously. financial

we about operating that we're progressing I think on margins. talked

G&A our target target, operating ROIIC EPS felt well target very as good that we've our as about sales our target So our I and achieving margins, our set.

the a feel all I continues very things think I about the think going we've those. of competitive to U.S. certainly end good our And but all we the shareholders target to achieving set market, good good return pretty as as those. all I cash about out I So XXXX, we that of by there about overall, look be into feel XXXX. Obviously, feel really about

So entered growth XXXX business we with I to knowing the achieve same all continue street said good trying pretty to just to in in the in to Steve around continue turn the confidence a think there. getting outcome while for increase big that the fight of scale us still our done comp we as projects got time and U.S.

Steve Easterbrook

psychological very And is momentum a then, guide to I to just helps that, teams. mean, of add important our behaviors

is as winning I -- we as think from market-to-market. contagious

the going then, into previously, our structure adopt way the new and we with simplified are it think new I to year.

lifting, our working launching with and through the planning been We've getting is these Just we we speed exit clearly through the annual what and then to XXXX. look exit initiatives has only we -- go as visibility processes, which better greater. of for never localizing or are market-to-market been

our early and I in we and say grow Clearly we sales through markets to next planning the confident are comp have look-up of incredibly the each some would think momentum in of sales are markets for continuing. world. market territory are Managing top are plans them Directors I every the Certainly year, that around XX strong as momentum go in XX quite as -- our positive well.

been plans. So If historically of there I have not Managing is of though. growth the to simply weeks There countries China the our where amongst hyperinflationary not. -- this there you mood though easy is share next we the lovely obviously, just out typically a is up there, and is field likes for a year think that. have detail market taken single leaders and a is the tailwind I the what granted. shape of six the Russia or four a Even XXXX Directors of none next that But, the optimism where

more much markets are But in competitive these excited we're direction more and markets, So confident to more games about our sharpen mature we've heading as now to we in come. are much those well. and the what's

Mike Flores

Thank you, our participating. That for and you, Steve everyone will and end thank call. Kevin,

Operator

and this may at Thank lines now your for participation Call. you Corporation McDonald's you disconnect the your concludes Investor time. This

McDonald's (MCD) 23 Oct 182018 Q3 Earnings call transcript