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4,400 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Operator: We'll take our next question from Timothy Chiodo at UBS.
Timothy Chiodo: Great, thank you. I want to talk a little bit about wins and migration in general, as it relates to unit economics and some of the incentives timing, just because it's topical, given some of the lapping and conversions and whatnot. On the beginning of a contract, so we understand on the beginning, and there's sort of a fixed component of R&I that hits before the portfolio fully ramps. And then on the end of a contract, when something is about to be converted away or migrated away, like in the case of Capital One, we understand that sometimes the incentives can be either turned off or diminished during that time period. I was just hoping you could talk a little bit about the beginning and the end of those contracts in terms of incentives, the fix, the variable component, and add any context there. |
4,401 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Sachin Mehra : Sure, so I think you got it right, as it relates to, when we get into a contract, and every contract's different, but when we get into a contract, we typically are incentivizing our customers to bring volume onto the system, right? That's kind of the starting point. And that could be a combination of fixed incentives or variable incentives, or both. And more often than not, it's both. And there's rebates as well, and rebates are just a component of, when I say incentives, just think about it as rebates and incentives in totality. The way it works is the variable component varies with volume. It's as simple as that, right? As volumes occur, you pay the related rebates and incentives, there are adjustments which take place to that, because you have to make projections as to what you think your volume outlook is going to be, and you actually accrue your incentives on that basis. On the fixed component, the amortization of fixed incentives commences when programs launch. That's kind of when it starts, and they're typically straight-lined over the life of the contract, right? The second part of your question is, at the end of the contract, what happens? And the answer to that is, it depends on the customer, and it depends on the dialogue we're having with the customer. And the reason I bring that up is, to the extent there's an opportunity, let's say there's a contract which is expiring, and we don't end up renewing it. But if there are, let's say, three other opportunities which we could have with that customer, you might actually end up in a situation where you're having a negotiation around, we're not going to get what we had in the past, so we're only going to get a portion of what we had in the past, but we're going to get three other things as part of the deal. And so, you actually will have a brand new negotiation which will take into consideration not only the incentives you're going to pay on the new volume you get, but also leverage a portion of what might be coming off in the nature of |
4,402 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | you're going to pay on the new volume you get, but also leverage a portion of what might be coming off in the nature of incentives you don't have to pay on the contract which you're sending. So, I'll give you an example. Back in, I think it was the middle of, sometime in 2014, 2015, right, when we started to migrate volume off of our network as it relates to Chase. At that point in time, there was a period of time when we went back to rack rates. In other words, we weren't paying incentives on the volumes there, right? There have been other instances where we've lost portfolios on one side, but won other portfolios, where you kind of leverage your dialogue with the customer to have the benefit of being able to have a continuity which is there. So, you're not always going to see the ramp-up take place in terms of going to rack rates. It also depends, by the way, on the timing, right? Depending on what level of readiness the customer has got from a migration standpoint. So, the customer, at the end of the contract needs, call it a year, a year and a half, two years, right? You might have an opportunity to actually work with the customer to try and see if there are opportunities there as well to either win new portfolios and or potentially go to rack rates. So, I know I'm not giving you the kind of answer you're looking for, which is give me an answer as to whether it's one or the other. It depends, right? |
4,403 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Michael Miebach: And when you look at our relationships, earlier I was referencing in my prepared remarks the term of strategic partnerships and that's exactly how we look at it. It's not just a relationship. So, if we grew with somebody in consumer payments, you know we have a real big focus on commercial new payment flows and this is how we toggle that. It's a long-term view in all cases. And the one other thing I would say is just remind everybody about the virtuous cycle of growth. More the payment volume. It's always in focus for us. It's going to power more data and more data allows us to drive more services. So, that is the other lens that we take when we look at all of this.
Operator: We'll move next to Craig Moore at FT Partners.
Unidentified Analyst : Yes, hi, thanks for taking the questions. Wanted to ask as we look to help investors think about assets that can outperform in a slowing environment, I wanted to ask you guys what you thought were the idiosyncratic pieces of your business that might allow you to perform better than peers or competitors as things slow. What are the unique assets you have that could perform better in a slowing environment versus others? Thanks. |
4,404 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Michael Miebach: Right, great question. And I want to anchor it on the nature of our highly diversified business. And that is an answer that I would have given you even if you had asked after growth areas in fast-growing environments and not only in slow-growing environments because the diversification helps us both ways. And I think that's important. Clearly, the economic picture isn't always even across the world. So, we keep both of that in mind. Now, another important aspect about our business is having payments and having a secular trend where payments move from cash and checks into digital is an underlying powerful secular trend that continues. And in ups and downs, economic ups and downs, this will continue. In fact, if you look into the commercial space, more and more firms are right now going and pushing digitized payments and particularly card payments because they provide them more data. So, they can use that data to better serve their customers, optimize their processes or improve their working capital usage. So, here's an underlying powerful trend that survives the up and down of the overall economic picture at any given moment as a medium to long-term trend. And there's other such trends that we have very specifically targeted for our services solutions. Take cybersecurity. We're in a world where the fraudsters, the scammers, the phishers are using artificial intelligence as much as we do. And this is a constant battle. And our customers are seeing that, financial institutions are seeing that, governments are seeing that. So, if anything, the rise of cybersecurity, the need for cybersecurity measures has increased. So, powerful underlying trend. And then the last thing I should say is all of the, pretty much all of our solutions do one thing for our customers. They provide more data for them to run their business better and make better decisions. Now, in a world of up and down cycles, you understand your customer better. You want to understand how you put possibly different solutions out there than |
4,405 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | cycles, you understand your customer better. You want to understand how you put possibly different solutions out there than you otherwise have. You want to understand how you perform against your competitor with even more rigor than before. And that is where we can help. That's another powerful trend. Cybersecurity, data insights, and the underlying secular opportunity. Those are, in addition to the fact that we are across discretionary, non-discretionary spend, that we are across literally every part of the world, makes this a very, very well-diversified business in challenging economic times, but also in fast-growing times. |
4,406 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Operator: We'll go next to Bryan Keane at Deutsche Bank.
Bryan Keane: Yes, good morning. Sachin, I wanted to ask high level, we were at net revenue growth of 16% in the fourth quarter, and we actually increased a point to 17% in the first quarter, despite a little bit of a volume slowdown. Part of that is due to leap years, you said. But the net revenue growth maintained at that high level. And it looks like transaction processing yields in particular jumped a little bit higher. How much, can you help us explain despite volumes going down to make sure we understand the growth that was maintained, or even up-ticked a point into the first quarter? And it doesn't sound like FX vol would be all of it. And then just thinking about going forward into the second quarter, if some of those benefits, volume to revenue and yields will continue. Thanks. |
4,407 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Sachin Mehra : Sure. So, I think you kind of touched upon the answer to the question right there, which is the lift you saw in Q1 was driven by two factors. One is the FX volatility point, which you just raised. I mean, it was volatility levels were actually really high in the first quarter, and that certainly contributed. And then the second was the point I made earlier in the call around our rebates and incentives came in lower than expected in the first quarter, which we expect will happen later in the year, but that's what we kind of saw come through. The second part of your question as to and remember also that 17% number actually has the impact of acquisitions in there. So you have to actually do it like kind from Q4 to Q1, with and without acquisitions. Then as it relates to your question about Q1 versus Q2, the things to keep in mind out there are, there is a ramp up of the lapping of various wins we had last year, which again, I spoke about. There's lapping of pricing, which is taking place. And the reality is FX vols are really hard to predict, right? I'll tell you in the early part of April you had decently high FX vols. We factored that into our thinking, which we've shared with you. And then they started to taper off. Now, I don't know if they're going to go up again or come down again. We put our best estimates together and that's how we think about it.
Devin Corr : It's time for one more question, Audra.
Operator: Thank you. And we'll take that question from Paul Golding at Macquarie.
Paul Golding: Thanks so much. It seems based on the commentary that there's been added focus on crypto and enabling crypto tools. Just wanted to ask how you're thinking about the economics of incorporating those crypto partnerships. If you're seeing acceleration there and how that may or may not be impacting your relationship with traditional issuers as stable coin has become a bigger part of the story here in the last couple of quarters. Thanks so much. |
4,408 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Michael Miebach: All right. So this, it's a very interesting space. And you heard us talk about digital assets and blockchain-based technology for years. We've been investing, but it's also true that it hasn't been a tremendously big part of our business. We've seen the on-ramp and off-ramp part of facilitating investments into crypto assets and selling those investments for some time now. That was a fast-growing business, but the fundamental technology to put to work to optimize payments, for example, is something that's still relatively nascent. Stablecoins is also relatively nascent. Why is that? Because there isn't yet sufficient regulatory clarity. Now in the United States, we know there's two bills that are being discussed around this space. In Europe, lawmaking is going on around this space, so we feel the ecosystem is ready. We have been engaging with partners in the financial institution side, to your question, to put out some pilots, particularly in the wholesale space. There are private sector initiatives on stablecoins. One thing that's for sure true is if you look at the role that we play today in the traditional card payment space is we establish safety and security standards. We provide interoperability. You think about a world of stablecoins, so you can start to see there's a natural role emerging, yet again, for somebody like us, who can provide trusted interoperability solutions, safety and security standards, and the need for our services across identity questions, AML, KYC, you name it, across the board. So it's a space that's still emerging at this point in time. We mentioned our multi-token network. How will the economic model look like at this point in time? Early to say. It has to settle. We have to see how it grows once we have the regulatory clarity. Personally, I'm quite excited about it. Payment innovation is something that the U.S. government has in focus, and many others do as well, and we're a trusted partner in that space.
Devin Corr : The closing comments, Michael? |
4,409 | MA | 1 | 2,025 | 2025-05-01 09:00:00 | Mastercard Incorporated | 6,477,196 | Devin Corr : The closing comments, Michael?
Michael Miebach: The closing comment is I'm delighted that Sachin and I are together in one room in New York again. We haven't had that for a long time, so that's fantastic. And of course, I do want to thank everybody at Mastercard for all the hard work that you do to produce such a strong quarter. We're looking into the new year with optimism, into the rest of the year with optimism. I'm going to push on and speak to you in a quarter from now. Thank you very much.
Devin Corr : Thank you very much.
Sachin Mehra : Thank you.
Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect. |
4,410 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Operator: Hello, and welcome to McDonald's Fourth Quarter 2024 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. At that time, investors only may ask a question by pressing star one on their touch tone phone. I would now like to turn the conference over to Mr. Scott Meader, Interim Treasurer for McDonald's Corporation. Mr. Meader, you may begin.
Scott Meader: Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski, and Chief Financial Officer, Ian Borden. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris. |
4,411 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thanks, Scott, and good morning, everyone. Thank you for joining us today to review our fourth quarter and fiscal year results. Obviously, our performance in 2024 did not meet our expectations, but I'm still immensely proud of our McDonald's system. It was a busy year, and at times it felt like McDonald's was a part of almost every major news story, reflecting the reach and visibility of our brand. Throughout it all, McDonald's people were resilient and responsive. We stayed focused on our customers, acted swiftly when needed, and continued to run our restaurants at a high level. To our employees, franchisees, and suppliers, I want to say thank you. In 2024, global comp sales decreased 0.1% for the full year, with comps up 0.4% in the fourth quarter, including positive comps across our IDL and IOM segments. In the US, comp sales were down 1.4% for Q4 amidst the impact of the E. coli outbreak. Ian will provide you with more texture on these results in just a minute. As we transition into 2025, several factors give me confidence that our performance will return to proper form over the next several quarters. First, we have the right strategy, accelerating the arches. Our MCD growth pillars still offer significant growth opportunities, and I'm pleased with the 2025 market plans, particularly their balance of value and full-margin food innovation. Second, the US food safety issue is now largely behind us, and we expect to have fully recovered by the beginning of Q2. At McDonald's, we always say that food safety is our number one priority. This unfortunate incident is an important reminder of that fact. The strength of our brand depends upon the absolute trust of our customers, and I'm pleased by the positive feedback we've received from so many regarding our rapid and transparent handling of this issue. And third, we'll continue to realize incremental benefits as more markets deploy new solutions from each of our three strategic technology platforms: Consumer, Restaurant, and Company. Later, I'll |
4,412 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | deploy new solutions from each of our three strategic technology platforms: Consumer, Restaurant, and Company. Later, I'll come back and provide more visibility into our 2025 plans, but for now, let's move on to Ian, who will discuss Q4 and full-year results. |
4,413 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Thanks, Chris, and good morning, everyone. As Chris noted, the QSR industry remained challenged, and our performance in 2024 fell short of our expectations. Pressure on spending persists, in particular, with two significant cohorts of our low-income and families, particularly in Europe. Still, we're confident that our accelerating the ARCHES strategy, which is rooted in customer insights and built on our inherent competitive advantages, is right for our business to win in 2025 and beyond. With respect to our quarter four performance, global comp sales growth was slightly positive. In the US, quarter four comp sales were negative, reflecting the impact of the food safety incident. When we met last quarter, we committed to bringing the full resources of McDonald's to bear to reengage the customer, and we did just that. As Chris mentioned, by the beginning of Q2, we expect to have fully recovered. The immediate actions we took to identify the cause allowed us to quickly shift the focus to regaining our customers' trust and reigniting their brand affinity. Throughout November and December, we saw sequential improvement in baseline traffic performance, including slightly positive comp guest count growth for the month of December, and had a positive comp guest count gap to most near-end competitors for the fourth quarter. These results were driven by our marketing efforts to amplify traffic drivers. This includes additional investment in our national value campaign and always-on digital and media plans to drive momentum. In our international operated market segment, comp sales performance this quarter was slightly positive due to mixed results, including negative comps in the UK. While QSR industry traffic was positive in only two of our big five markets, we had a positive comp guest count gap to most near-end competitors across the majority of our largest markets. During a difficult time for the industry, we have acted with urgency and remain steadfast in continuing to focus on what's within our control, |
4,414 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | time for the industry, we have acted with urgency and remain steadfast in continuing to focus on what's within our control, including refining and providing compelling value propositions, introducing exciting menu innovation, and leaning into our one McDonald's way approach to marketing by driving brand strength, building cultural relevance, and connecting with our customers and crew in exciting ways. For example, on our value propositions, Canada has paired everyday affordable price or EDAP menus with strong meal bundles through the Canadian McValue menu, which and a one dollar coffee EDAP offering which drove coffee share gains in the quarter. Canada not only provided great value offers but paired them with full-margin promotions that connected with our fans through culturally relevant campaigns. One example is the Grinch meal, which generated nearly $30 million on social media, our highest user-generated content ever in Canada. These all help to drive positive sales and guest count performance in the market, including a positive guest count gap to near-end competitors for the entirety of the fourth quarter. And in Germany, we've continued to meet customers where they are, even with a difficult industry backdrop. While QSR industry traffic in Germany has continued to contract further since the third quarter, we have continued to drive market share gains by expanding upon the already successful Mix Smart Menu, now offering a range of meal bundle options introduced at the end of September. We are seeing incrementality to the business driven by the extended value offerings and by layering on exciting menu news with full-margin items such as dirham, or the Big Arch, as well as the Big Roster, which have made its annual return. In other markets such as Spain, we have continued to outperform the competition by driving strong execution of our Accelerating the Arch's strategy, including continuing to focus on value through Menu for You, which is a branded equity that we have been able to capitalize on for over three |
4,415 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | to focus on value through Menu for You, which is a branded equity that we have been able to capitalize on for over three years, and delivering on digital execution with a month-long Christmas calendar boosting engagement on the app and driving an increase in identified users. We also saw success from our one McDonald's way approach to marketing, combining cultural relevance with global reach through a Friends TV show-themed adult happy meal featuring our core menu items, including six Friends characters and a themed dipping sauce. The campaign provided a significant lift to our top line, with a social media reach expanding well beyond just Spain. All of this contributed to the market's strong comp sales and guest count performance in the quarter, as well as share gains for both the quarter and the year. France, a market that we've talked about all year, started to see signs of improvement, with positive comp sales and guest count gaps to near-end competitors for the fourth quarter. These results were driven by our partnership with Hot Ones, providing three fiery sauces to fans, each one spicier than the next, being one of the most talked-about campaigns over the last few years in the market. We've also seen the success of the four-euro Happy Meal, which has resonated with families, driving an improvement in their brand perceptions around value and affordability, and a lift in the happy meal category. We are encouraged by these signs of progress internationally and will continue to build upon the actions taken in 2024 that we have a strong foundation for growth in 2025. Finally, in our international developmental license segment, comp sales for the quarter were over 4%, largely driven by positive results in the Middle East and Japan. In the Middle East, the positive sales comp largely reflected lapping the impact of the war that began in October of 2023. And in China, seeing encouraging signs of stabilization. In short, while the global QSR industry remains challenging, we're confident in our competitive |
4,416 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | signs of stabilization. In short, while the global QSR industry remains challenging, we're confident in our competitive strengths across our MCD growth pillars and our strong execution against the value expectations of our customers. Our ability to continually evolve to stay ahead of the customer positions us for success in any economic environment. Turning to the P&L, adjusted earnings per share were $2.83 for the quarter, a 4% decrease compared to the prior year in constant currencies, reflecting the pressure on our top line. Results also reflect higher other operating expenses as well as the comparison to a prior year property sale gain. For the full year, adjusted operating margin was just over 46%, with top-line results generating more than $14.5 billion in restaurant margin dollars for the year, providing evidence of the resiliency of our business model. Lastly, before I hand it back over to Chris, I want to touch briefly on our capital expenditures and free cash flow profile. Our CapEx spend for the year was just under $2.8 billion. More than half was invested in new restaurant unit expansion across our US and IOM segments, which enabled us to deliver on our openings target for the year. Our CapEx spend was slightly above the high end of the range we provided for the year as we invested more toward our future year development pipeline, setting us up for success as we continue to increase our pace of openings. Our free cash flow conversion for the year was 81%, below our expected 90% range due to pressures on top-line performance and higher capital spend to accelerate new restaurant growth. We have continued to follow our capital allocation priorities for the year. After investing to support the long-term growth of the business, we returned $7.7 billion of cash to shareholders through a combination of dividends and share buybacks. We remain committed to returning all excess free cash flow to shareholders over time. I'll talk about our 2025 outlook shortly, but first, let me hand it back over to Chris. |
4,417 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thanks, Ian. Our ability to stay ahead of customers' changing needs and reimagine the McDonald's experience for tomorrow is the key to achieving our 2025 ambitions. We're moving forward with agility and urgency, getting back to guest count-led growth and winning share from our competitors. Our unwavering focus on the MCD growth pillars will continue to unlock executional excellence and drive growth across our business. Our marketing efforts are reclaiming leadership in value and affordability through initiatives like everyday affordable price menus and meal bundles. In the US, the January launch of the McVeigh platform provides consistent, compelling value with the choice and flexibility our customers want. In many of our international markets, we are making further enhancements to our value programs in the first quarter to ensure that we are offering industry-leading value. And with good value at the foundation, we will overlay a strong pipeline of creative marketing ideas that will delight our fans and will provide full-margin check growth. Our core menu remains at the heart of our business. We're excited about the significant opportunity we see within our chicken portfolio and see the potential to add another point of chicken market share by the end of 2026. We continue to roll out McRispe, which is now in over 70 markets and will be available in nearly all markets by the end of 2025. This year, there is incredible energy for the return of snack wraps in the US along with a few other markets. And the US will also launch a new chicken strip offering. We'll continue to pulse in the chicken Big Mac as a limited-time-only offering over time. In 2024, the Chicken Big Mac helped generate chicken market share growth in France and the US with positive incrementality. Deployment of Best Burger continues. It's currently available in over 80 countries, and we're on track to implement it in nearly all markets by the end of 2026. And we're excited to capture incremental growth with the big arch as we |
4,418 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | implement it in nearly all markets by the end of 2026. And we're excited to capture incremental growth with the big arch as we roll it out to more international markets this year. Our 4Ds continue to drive growth, and we're actively doubling down on digital and development. For digital, we know loyalty customers spend more than their non-digital counterparts. We've made strong progress, and we're on track toward our long-term targets of 250 million 90-day active users and $45 billion in annual system-wide sales by the end of 2027. To date, our 90-day active users total has reached over 170 million across 60 markets, with system-wide sales to loyalty members totaling approximately $30 billion in 2024. We will also continue to redefine convenience for our customers with ready-on-arrival deployment underway in markets across the world. For development, we delivered on our 2024 restaurant openings targets across the globe, and we're on track to reach 50,000 restaurants by the end of 2027. Finally, our close partnership with our world-class franchisees, including the recent renewal of our master franchise agreement with Arcos Dorados, will be critical to driving our continued growth. Let me now turn it back over to Ian for details on our 2025 outlook. |
4,419 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Thanks, Chris. We're confident that our Accelerate in the Arch strategy will continue to drive growth in 2025 and over the longer term. But as we've discussed, there are varying levels of near-term headwinds across markets. Our approach to our 2025 outlook reflects the current environment of softer declining restaurant industry traffic in the US and many of our larger markets. That said, as Chris noted, regardless of the operating environment, we remain steadfast on the execution of our Accelerating the Arches strategy and the continued rollout of the actions we began to take in 2024 across the system to drive guest count-led growth and grow market share by outperforming our competitors. Our financial targets for 2025 reflect the benefit of these initiatives as well as our expectation of gradual stabilization of the MAX economic and consumer environment but do not include any impact from potential new tariffs. Should the underlying environment improve beyond our initial expectations, especially with respect to lower-income consumers, we would expect to benefit disproportionately relative to our competitors. Specifically for 2025, driven by the durability of our business model, we're targeting our full-year operating margin percent to be in the mid to high 40% range and above the 46.3% adjusted operating margin from 2024, primarily due to franchise margin performance. This includes our expectation that our full-year company-operated margin percent will be slightly higher than the 14.8% we delivered in 2024, driven by top-line growth and partly offset by continued cost pressures. With respect to G&A, our system's financial strength enables us to invest in areas that we expect will drive long-term efficiency for our people and for our stakeholders. Even with the muted top-line growth in 2024, we maintained the right long-term investment mindset as we were able to prioritize our run-the-business spend. We expect 2025 G&A as a percentage of system-wide sales for the full year to be about 2.2%. Our 2025 |
4,420 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | run-the-business spend. We expect 2025 G&A as a percentage of system-wide sales for the full year to be about 2.2%. Our 2025 target reflects continued investments in technology, digital, and global business services, or GBS. You heard Chris mention the three strategic technology platforms earlier. Through the investments in these platforms, we plan to continue to get more efficient in running the business over time and ultimately free up more resources to continue to drive long-term growth. We still have significant investment years ahead of us before these efficiencies are realized. Below the operating line, we're projecting interest expense this year to increase between 4% and 6% compared to 2024 due to higher average debt balances and interest rates and expect our full-year effective tax rate to be between 20% and 22%. Turning to restaurant development and capital expenditures, we expect net restaurant expansion in 2025, along with restaurants we opened in 2024, will contribute slightly over 2% to system-wide sales growth as we continue to accelerate our new unit development. We plan to spend between $3 billion and $3.2 billion this year, with the majority invested in new unit openings across our US and IOM segments. This increase in CapEx versus the prior year is in line with our expectation of about $300 million to $500 million increases each year through 2027, as we outlined at our December 2023 Investor Day. Globally, we plan to open approximately 2,200 restaurants this year, with about a quarter of these openings in our US and IOM segments. We expect to open more than 1,600 restaurants in our IDL segment, including about 1,000 in China. Overall, we anticipate slightly over 4% unit growth from the nearly 1,800 net restaurant additions in 2025. Our capital allocation priorities remain unchanged. First, to invest in the business to drive growth, including capital expenditures as well as investments in technology, digital, and GBS. Second, to prioritize our dividend, and third, to repurchase shares with |
4,421 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | well as investments in technology, digital, and GBS. Second, to prioritize our dividend, and third, to repurchase shares with remaining free cash flow over time. In 2025, we expect our net income to free cash flow conversion to be in the low to mid-80% range as we continue to step up strategic investments to drive sustainable long-term growth of the business. Over the longer term, we continue to target free cash flow conversion in the 90%, reflecting the resiliency of our business model. However, we do expect that the conversion percentage will be below that longer-term target during the peaks in an investment cycle. Lastly, with a strong US dollar that may continue to strengthen in 2025, we expect foreign currency to be a full-year headwind to 2025 EPS, totaling in the range of $0.20 to $0.30 based on current exchange rates. As always, this is directional guidance only, as rates will likely change as we move through the remainder of the year. The resilience of our business and our overall financial strength have put us in a position to succeed in any environment. And I'm confident that the continued execution of our Accelerated in the Archer strategy sets us up to deliver long-term growth for our system and create value for our shareholders. Now let me turn it back over to Chris. |
4,422 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: This year, McDonald's will celebrate its 70th anniversary. Seventy years of defining what it means to be the leader in our industry. Through generations of ever-changing global economies, technological booms, extraordinary social and political evolution, and resounding connection to the center of culture, we've grown stronger year after year by staying true to what we do best: serving delicious food with unmatched value to our customers while feeding and fostering communities around the world. McDonald's remains uniquely positioned to do just that. By staying true to our golden rule of treating everyone with dignity, fairness, and respect, we continue to build connections that strengthen our brand and make positive impacts through our 40,000-plus local businesses around the world. Our unwavering commitment to inclusion requires ongoing focus. While we recently evolved our approach, McDonald's commitment to inclusion is steadfast. So I think about the road ahead for 2025. I'm reminded of a quote from our founder, Ray Kroc. He said that the two most important requirements for major success are first, being in the right place at the right time, and second, doing something about it. We believe no one is better positioned than McDonald's to seize on the opportunities ahead, face complexities head-on, and in the words of Ray, do something about it. We have all the tools we need to focus on what matters most to our communities and customers. As we look to 2025, we won't let up. We're playing to win. We have the right playbook in accelerating the arches. We have the right advantages: our size, our scale, our brand relevance, the right mindset, and a strong legacy of acting on our biggest and boldest ideas. We have the power of our three-legged stool. Thank you to our remarkable franchisees, suppliers, and employees. Your dedication to our McFamily and the communities you serve is unparalleled. We are grateful for your passion and so very proud of our partnership. Together, I look forward to making the |
4,423 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | is unparalleled. We are grateful for your passion and so very proud of our partnership. Together, I look forward to making the arches shine even brighter in 2025 and beyond. With that, we'll take questions. |
4,424 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Operator: Thank you. And as a reminder, if you are an investor and would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and requeue for any additional questions.
Dennis Geiger: Our first question is from Dennis Geiger with UBS. Great. Morning, guys. Thank you. Wondering if you could talk a little bit more about the early customer response to McValue, sort of any updates to the latest on customer value perception in the US? And if any thoughts to share sort of on the guest count check and margin impacts from the new platform? Thank you.
Chris Kempczinski: Sure. Good morning, Dennis. So we are it's obviously early days still with McValue, but we're pleased with how it's getting out of the gate. One of the things that we're looking at is take rates. We look at take rates on the $5 meal deal. We look at take rates on the buy one add one for a dollar, and those take rates are very much in line with what our expectations were for that. So we're pleased with how that's getting out of the gate. From a perception standpoint, as we have increased our focus on value in the US, starting last year when we launched the $5 meal deal and then extending into Q1, I've been pleased to see that we're seeing our improvement in getting back to leadership, most recently particularly on the most recent visit with value and affordability. So I think we're seeing the customers giving us credit for the value programs that we have put in place there. So feel good about that. |
4,425 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: And maybe just, Dennis, I'll just build on Chris because you were asking about check-in margins. And so I think just talking specifically about the buy one, add one for a dollar, where I think we're seeing strong kind of check-in those transactions, in fact, accretive to our overall check-in transactions that have a buy one add one in. Good margins obviously. And I think building on what Chris was talking about, I mean, I think consumers really appreciate the flexibility with that offer because it allows them to kind of build an outcome to what they want to get to from a product choice standpoint. I think the other thing I would just highlight is breakfast in particular. We've seen really strong take-up of that offer, and breakfast has been a really strong daypart for the US business through 2024. It's an area where we're taking share. And I think if you think ahead a little bit, it will be the 50th anniversary of breakfast in the US this year, and I think there'll be some really interesting and exciting things the US business does over the next little while around breakfast stuff. So more to come on that later. Yeah. Just to maybe add one other thing to what Ian was talking about. If you look at the $5 meal deal, even though that's compelling value, it's driving other purchases. So the average check on the $5 meal deal for us in the US is north of $10. It's doing what we were hoping for when we launched that. |
4,426 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | David Palmer: Our next question is from David Palmer with Evercore. Thanks. A quick follow-up on that. In the fourth quarter, US comp reflected a negative check, slightly positive traffic. You know, could you give us a sense of price versus mix in the quarter and why we saw what we saw there? And then my main question is really on IOM. Any color that you can offer there? A lot of brands, US brands slowed in the back half of fourth quarter 2023. Did you see an acceleration through fourth quarter 2024, better exit rate in key IOM markets? And I know you've been doing some tinkering with value relaunches in key IOM markets. Any color on that would be helpful. Thank you. |
4,427 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Sure. I'll kind of just hit some high-level comments, and then as always, I'll let Ian give the details. You know, in the US, we were seeing it, as you know, in early October, we were seeing strong performance in the US with both good check as well as positive GCs. And then, of course, we had the unfortunate E. coli incident. As you think about how then the quarter started to play out, we kind of hit our nadir in, I'd say, early November, and then we saw sequential improvement through the balance of the quarter, which has now continued into Q1. But what you're seeing is you're seeing that we are driving GCs and stealing share from a GC standpoint. But not surprisingly, particularly now as we're into Q1 and we're launching a broader McValue platform, GCs are running ahead of check, and that's very much consistent with our experience as you're putting in new value programs, you will see check run ahead of GCs. I think Joe has talked about that in the past. And then as you get that sort of bedded down, and you introduce food news and other things on top of that, you get the one-two punch of check plus GC growth. So that's what we're expecting in the US. From IOM, you're right to acknowledge that we're seeing improving trends there. But it really is almost on a market-by-market basis there. So we've talked about for basically about a year some of the opportunities that we had in France. I've been very pleased to see how that French business has continued to improve their performance, and that's continuing into Q1. So we feel good about France. We feel good about Canada. We continue to outperform in Germany. We continue to outperform in Italy. Our opportunities in IOM, the two markets that we are spending the most time thinking about right now are the UK and Australia, where, one, it's both a challenged market, and, two, frankly, we're not performing to our full potentials. So I'd say net-net on balance, we're seeing IOM improve. I think you saw that in the results, but there's still work to do in |
4,428 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | So I'd say net-net on balance, we're seeing IOM improve. I think you saw that in the results, but there's still work to do in a few of our specific markets. |
4,429 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: But, David, just I'll just maybe double-click on a couple of things because Chris's response was pretty comprehensive. I think just maybe the reminder in the US, and we talked about this in the Q3 call, was pre-food safety incident. You know, we were seeing almost kind of a mid-single-digit comp sale and a comp traffic just below that. So I think that just is the reason I highlight that is because when we get kind of value driving momentum and then we start layering in kind of the, as we've talked about before, the full-margin food news like the Chicken Big Mac in that instance or the, you know, the great marketing execution, you start driving volume and really profitable transactions, and that's where we were at. Obviously, the food safety incident had a disruptive impact on the US in the quarter, and there were a couple of specific things obviously that happened. First is you had an impact on quarter pounder sales, which is a high-margin, high-check driving transaction item, and then obviously, to kind of regain momentum, regain trust, obviously, we invest a fair bit in value and affordability and obviously in digital offers to get the consumer back. And so that's certainly, I would call it, where kind of time-bound impacts on check through the quarter that we certainly would expect to dissipate as we get kind of momentum where we want it to be through quarter one this year. On IOM, the only thing I'd add to what Chris said is, I mean, we're certainly, as you heard us in our upfront remarks, continuing to operate in uneven conditions. And so while we're really pleased with the progress that we've driven through the actions we've taken, in particular in areas like value and affordability, we're still dealing in a number of markets in our top markets where the industry is contracting. And so our momentum is certainly moving in the right direction, as you heard from Chris. But it's still certainly there's an element of headwind that we're continuing to navigate. |
4,430 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | David Tarantino: Our next question is from David Tarantino with Baird. Hi. Good morning. Just a clarification on how you're thinking about the US recovery. I think you mentioned you expected a full recovery from the E. coli incident by the beginning of Q2. I guess, you know, one question is, you know, what's, you know, I guess, what does that sort of mean in terms of kind of what type of comp momentum you're thinking, you know, once you get fully recovered, and then, I guess, what's giving you the line of sight to that?
Chris Kempczinski: Yeah. Thank you, David. So, you know, on the US recovery from E. coli, I think right now what we're seeing is that the E. coli impact is now just localized to the areas that had the biggest impact. So think about that as sort of the Rocky Mountain region. That was really the epicenter of the issue, and that continues to be down versus where we were heading into that impact, but very much seeing it at this point is just contained to that region, whereas the rest of the US, we don't see an impact on that. I think importantly, what gives us encouragement is we're looking at the trends in those affected areas. And that's what led to our comment around thinking that, you know, we'll have it behind us as we begin in Q2. To your point around what that actually means, it's going to be a function of us executing. So it's not just that we get E. coli behind us, but it goes to we've got to make sure that we've got McValue off to a good start, and we've got to make sure that we have strong marketing programs along with food innovation that goes with that. I think what you see is that when we do that and we do that well, this business has the potential to be putting up both positive GCs as well as positive check, and ultimately, that drives comp. So that's our expectation. That's the plan that we put in place, which is if we execute, that we get this business, as I described in my comments, back to proper form. |
4,431 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: And, David, maybe just a couple of builds to Chris' comments. I mean, I think you heard us in our upfront remarks talk about the fact that we've recovered trust levels at a national basis back to where they were pre-incident level. We still got the isolated impacts that Chris talked about. And I think, obviously, what we're trying to do is get the US business back to the momentum that we were seeing to start Q4. I mean, we're very encouraged by the fact that, as we talked about, we ended the year in December with positive, slightly positive comp guest counts in the US. We know on a Q4 total basis that we were taking comparable traffic share versus the industry still in the US. But we still got, as Chris talked about, just, I think, a little more work to do to get that momentum kind of fully back to where we think it can be as we work through Q1.
Sara Senatore: Our next question is from Sara Senatore with Bank of America. Hello. Thanks. I just wanted to sort of follow-up, I guess, on check a little bit, which is, you know, you mentioned digital and loyalty growth. You know, it's very strong. Those checks tend to be higher, but ultimately, I guess, same-store sales growth was fairly muted. You know, as you noted, there are lots of puts and takes. You know, perhaps breakfast has a negative check impact too. But I guess I'm trying to understand as you think about loyalty growth and digital orders, whether you would expect to see that materialize as, you know, an inflection in same-store sales or how you're thinking about it because it does seem like we broadly see higher checks, but not necessarily, you know, kind of a trajectory change. And then just quickly on the UK, yeah, that's a market that has historically, I think, been very strong for McDonald's. So, you know, is there anything to note there just, you know, it's negative or sort of talking as a weak point. Surprised me a little bit. |
4,432 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Yeah. Why don't I'll take the UK and then let Ian address the other question that you had, Sara. So I think in the UK, if you think about that business, you're right. It's one that historically has performed quite well for us and one of our strongest performers. I think what we've seen in the UK is certainly the consumer there is under pressure. There's a cost of living issue that exists in the UK. That is putting pressure on the low-income consumers consistent with what we've seen in the US. That's also putting pressure on families. We have a very big family business in the UK. That has impacted us as families are looking to economize, that has an impact on us. And you have a very strong local competitor there who's been very aggressive from a value standpoint, particularly on breakfast. And so you put all those things together, and we're not seeing the UK business perform certainly at a level that we're used to historically. I think that said, we understand what needs to go in place, and there's been a lot of work with our local franchisees there to do that. It goes to making sure that we have a strong savers platform that's been something that's been in the market for quite a while. We've introduced a five-pound meal deal, similar to what we have in the US. And there's also been a focus on the happy meal program to reengage that family business. And paired with that, though, is we need to have better marketing in the UK. I think we frankly didn't have the level of marketing execution in the back half of last year that we're used to. And so that's, I think, one of the big priorities for us as we head into 2025 is we've got to get that marketing to be kicking in so that we do have this one-two punch of being competitive on value, which I feel very confident we now have in the UK, but you've got to be able to pair that with strong marketing programs, strong food innovation, can give you that sort of full-margin balance. We've run this playbook. Many of the things that I'm describing were the |
4,433 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | can give you that sort of full-margin balance. We've run this playbook. Many of the things that I'm describing were the same issues that we faced in France. The progress and the momentum that we're seeing on the French business now is what gives us confidence that we'll be able to get to the same place on the UK, but certainly work to do in the UK. |
4,434 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: So just, Sara, to circle back on your check question, and I'm going to exclude kind of the US, obviously, the food safety kind of specific disruptions, which again are kind of temporary and time-bound. I think more broadly, I mean, obviously, you've got a few things going on, I think, with check. You've got, obviously, pricing that's continuing to moderate because of the levels of inflation that are coming down. You've got us kind of making what I'll call some structural adjustments on value and affordability to ensure that we're kind of meeting the needs of consumers that's having kind of a reset on check. But, obviously, I think when you get kind of past those adjustments, I mean, I think there's we've got a lot of ability to kind of continue to drive strong check. And, obviously, we've got to start doing that by getting the right levels of momentum in the business. I mean, the US and kind of where we were pre-food safety incident is, I think, the best demonstration of that, again, if you think about where we were for the first three weeks of October with that kind of strong sales and then strong guest count build, obviously kind of building on each other as we've had momentum. And then kind of layer in these exciting food or marketing events. France is another example. Obviously, as you know from all the conversations we had on France throughout 2024. Again, as we started to see that kind of positive momentum come into effect and you look at Q4 where we had the Chicken Big Mac activation, we had this kind of hot sauce, fiery sauce kind of activation, which were strong food events with great marketing execution. Again, we were able to build both guest count and check volume. I think talking about digital specifically, digital certainly and loyalty in particular are going to be really important ways for us to continue to drive check. As you know, we've talked a lot about the fact that loyalty drives more visits and those customers spend more over time. And as we are continuing to build new and |
4,435 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | the fact that loyalty drives more visits and those customers spend more over time. And as we are continuing to build new and incremental capabilities and sources of value for consumers, we know we're going to be able to get those customers to spend more as they visit us. So I think digital will be a really important component of how we drive check and frequency as we look forward. |
4,436 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Brian Harbour: Our next question is from Brian Harbour with Morgan Stanley. Hey, yeah. Thanks. Good morning, guys. A quick one just, could you kind of spell out roughly where you'd expect unit growth to be in the US versus IOM? I know you kind of gave it together. But and then maybe just a broader question. You know, how has new unit performance been? Obviously, you seem to have leaned into that even more so than spoke about a little over a year ago, and you talked about kind of, you know, pulling forward some of that growth. But could you just comment on how you've seen that fare over the last year? |
4,437 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah. Morning, Brian. I think on unit growth, we said, you know, we expect as a system about 2,200 gross openings and about a quarter of that to be in our wholly-owned market. I would say of the quarter, about 70% of those openings would be in IOM and the rest roughly in the US. I mean, I think as you heard us say, we hit our development plans in 2024. And, you know, based on what we talked about at Investor Day, that we're kind of stepping up in our wholly-owned markets to get to a gross opening rate of 1,000 units a year in 2027, so each year is kind of a continual step up. 2025 is a big step up over 2024, and we feel confident about our pipelines. We've done a lot of work, you've heard us talk about previously, to identify, you know, where we need to be. We've done a lot of work to get the resourcing in place to build the pipeline, which obviously you need to do well in advance of kind of actually opening units. And we feel good about the health of our pipeline. And I think most importantly, obviously, the quality of the openings we're seeing are kind of in line with our expectations. We're getting those kind of strong starting year volumes and seeing those kind of first-year returns in that low to mid-teens area where we expect them to be and knowing that the vast majority of our new unit openings are freestanding drive-throughs. We know those sites kind of build to their sweet spot over the first couple of years as they kind of establish their trading area. So I think, you know, we're on pace. We're confident in getting to our 50,000 target by the end of 2027, and obviously, the wholly-owned openings are a really important part of that. |
4,438 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Lauren Silberman: Our next question is from Lauren Silberman with Deutsche Bank. Hey. Thank you very much. So it sounds like you're optimistic in the US about getting back to prior momentum. Good to hear about the return to positive comps internationally. Can you help level set how you're thinking about comps on a full-year basis in the US and IOM? And then any color on progression through the year, what we should expect for Q1 sequential improvement? Thank you very much. |
4,439 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah. Morning, Lauren. Let me maybe give a bit of context there. Look, I think if you think about at least maybe pacing and progression through 2025, I can comment a bit on that. I won't get into kind of specific comp numbers, but I think, you know, I think it's certainly reasonable to think of Q1 as kind of a low point quarter for the year. I mean, there are some very, I think, bad natural reasons for that. I mean, we've got a leap year lapping, which is obviously a negative headwind in Q1. I think we certainly seen a sluggish start to the broader US industry in January in the US. And I think if you think about everything that Chris and I have been talking about today, you've got our momentum kind of building on the back of the actions that we put in place through 2024, particularly obviously in regards to value and affordability. And some of those actions, I would say, still going into place in a couple of markets through Q1. And I think as we talked about in our opening remarks, I mean, I do think we think the kind of operating conditions get kind of gradually and progressively better as we work through the year. So I think that's a bit of the color I would give you on maybe texture. I mean, obviously, I think most importantly, as always, what we're focused on is what is within our control, which is obviously our Accelerate in the Arch plan, the fundamentals around that, and kind of the MCD levers that underpin our strategic plan. And I think we feel confident about the progress we're making and that we're doing everything we need to do to ensure that we're taking share consistently across all of our top markets despite, I think, some of these more challenging conditions that we continue to navigate. |
4,440 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | John Ivankoe: Our next question is from John Ivankoe with JPMorgan. Hi. Thank you. We've been, you know, talking about accelerating your organization leading into global business services for some time, and, you know, I understand the last couple of years, there's a lot of work done beneath the surface on GBS specifically. And, you know, the thought that we would start to see some benefits in 2025 and 2026. It doesn't sound like we're going to see leverage in 2025 and 2026 based on, you know, your earlier comments. So I did just want, you know, you to address maybe reasons why we're not seeing some leverage given some of the restructurings that would happen is kind of the first point. And then secondly, you know, if you can talk about some of the qualitative improvements in the business that have come specifically through GBS that we could see potentially benefit the business into 2025 and 2026? Thank you. |
4,441 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Hi, John. Well, you're right to acknowledge there's been a lot of work going on in getting this GBS organization set up. I'd say, you know, we certainly didn't expect to see us getting any of the benefits of that in 2024 or 2025 because we're very much in an investment phase. I don't think we communicated at all that we expected to see any benefit sort of in the early years of this. But the whole reason why we're doing this is, of course, because of the capabilities that we think it's going to bring as it comes more fully online in 2026 and then I think probably steady state in 2027. And it's the new capabilities paired with, I think, a much more efficient operating platform where you're going to start to see the benefits of that. So we're very much on track. We're pleased with all the work there, as you I'm sure know from other organizations that you cover. Setting these things up is a herculean effort, and there's a lot of people involved in getting this done. But I'm pleased with where we're at. We're very much on track, but I don't expect to see in 2025 that you're going to be getting any material benefits out of this, which is very consistent with how we've built the whole business case on this. |
4,442 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah, John, just maybe a couple of points of texture. You know, I think as Chris touched on, we're kind of in our peak investment years 2025, 2026, and into frankly part of 2027. As you've heard me talk about before, we've kind of got four key work streams. We've got finance, people, indirect sourcing, and then what we call data and analytics. We're pleased with the progress. But as Chris said, you know, these things take time and effort. We certainly believe when we get past these kind of more significant investment years, we'll see substantive kind of efficiencies being driven. And I think maybe just to give you a bit of a kind of a textural example, you know, we put kind of the first deployment of our people system in place in kind of 2024. And it just goes to kind of the ways of working, which if you remember, that was really about what accelerating the organization was about. It was about moving us from vertical to kind of horizontal ways of working across the organization, and a small example would be, I think we've reduced the kind of time to hire for restaurant managers in Australia, which was one of the first markets to go live with our new people system by 50%. So there'll be many examples like that just as we get to these kind of common systems and processes, and we remain really enthusiastic about the opportunities ahead. But as Chris said, this obviously always takes a bit of time to get to the full benefit.
Chris Kempczinski: Yeah. The only thing I would add to what Ian just said is if you look at G&A as a percent of system-wide sales, we've been able to hold that constant in 2024 even as we're making all of these investments. And we're certainly looking to continue to stay very disciplined on our overall absolute G&A spend with the potential over time as we bring these on to get further reductions on that as a percent of sales. So stay tuned. More to come on this. |
4,443 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Eric Gonzalez: Our next question is from Eric Gonzalez with KeyBanc. Alright. Thank you. The second half of 2024 was difficult from a profitable margin perspective in the fourth quarter. Particularly challenging in the US and the We haven't checked that kind of stuff earlier. I think you said you expected capital margins to improve year over year in 2025 driven by top-line growth. Beyond that recovery, can you discuss how much of that margin degradation is on the second half where you expect to get back? Given the heavier end of the fund value and the value of the issues that you rolled out at the start of the year, and what the drivers of that improvement will be year will be your progressive. |
4,444 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah. Let me take that one, Eric. Well, look, I mean, I think as you've heard me say previously, I think we remain really confident in our ability to drive margin improvement over time as we get that stronger top-line growth. So certainly nothing fundamentally has changed, I think, in that regard. I mean, obviously, as you highlighted, 2024 was clearly a year where we didn't get the strong top-line growth that we need to drive margin improvement. I think that combined with kind of some of the inflationary pressure areas like food and paper and labor as well as once you highlighted, which is kind of the mix shifts as we kind of get stronger value in affordability in place, certainly put pressure on margins through the course of the year. And then as you note, in the US, we had those specific impacts through quarter four, which was obviously, as I talked about earlier, the kind of impact specifically on quarter pounder sales, which is a very strong profitable margin item. And then the investment, I think, you know, I think the actions that we've taken across the business to get that really strong guest count momentum back in place. Combined with, as you always hear us talk about, then adding on kind of the full-margin food news and the great marketing execution are what get us back to growing improvement. That's obviously what we're expecting in 2025, which is why we've said expect margins to be slightly up from where they were in 2024 on a percentage basis. And I think that's despite obviously the fact that there is kind of continued inflation pressure and more limited pricing ability in the current context. So I think we feel confident about getting momentum back, and it's obviously volume ultimately and then that pairing for that kind of one-two punch that gives us confidence in our ability to grow margin in 2025 and then certainly beyond as we continue to get that strong top-line growth. |
4,445 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Andrew Charles: Our next question is from Andrew Charles with TD Cowen. Great. Thanks. Ian, just a good segue from the last question. You know, based on the MAC opcode to quote disclosure, we're estimating about a 14% decline in US Mexico's 2024 store-level cash flows. So I'm curious if, first, that's a fair proxy for the owner-operators in the past year, and then looking ahead, you know, curious about your confidence in US store-level cash flow growth in 2025. Just the industry does not appear to be backing down on value in 2025. Thanks.
Ian Borden: Yeah. Well, I won't, Andrew, try and reconcile the numbers. I think the team can do that with you in follow-up just in where you're kind of getting your numbers from, but because there are a few things I think that are kind of moving within margin, including some kind of structural changes. I think you can give more texture to. But I think, you know, on a broad basis, we feel, I mean, there's certainly some pressure points in 2025 when you think about some of the inflationary headwinds, particularly some of our European markets where there's a little bit more inflationary pressure on 2025 on food and paper, for example, beef prices. But I think if we look at our plans in total, across the majority of our markets, we certainly feel good that we can drive improvement to cash flow, and that'll be based on obviously driving that strong top-line volume and then obviously taking Makopka margin from a percentage basis up slightly versus where it was in 2024. |
4,446 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: The only thing I would add is certainly we had a number of things in the US business that we were navigating last year, inflation, investment in value. We had an E. coli. All that said, our US franchisees still achieved very strong cash flows north of half a million dollars per unit. So those businesses, that business continues to perform well. Franchising cash flow continues to be strong. And as we get some of those headwinds behind us and hopefully back to stronger momentum, that obviously would work its way through to the bottom line.
Jon Tower: Our next question is from Jon Tower with Citi. Great. Thanks for taking the question. I'm just curious, Chris. You'd outlined a number of the initiatives that you're going after in 2025 with respect to new product news. And noticeably absent was any commentary regarding kind of your beverage platform, specifically in the US. And I know at your Investor Day in late 2023, there was a lot of discussion around McCafe and how large of a platform that is globally. And the opportunity there to improve consistency across the globe. So I'm just hoping you could provide some current color around where you see that platform going over time and do you see that as a strategic opportunity over the next several years? |
4,447 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Sure. Thanks, Jon. Well, certainly, we are very bullish on the opportunity in beverages, and we think there's a lot of growth potential in beverages. Both in coffee, the coffee side, whether it's hot or iced, but also in some of these other beverage areas that you're seeing emerging, like refreshers, like energy drinks, etcetera, etcetera. So a lot of opportunity in beverages. That industry is or that category is growing about 2x the rest of the business with very strong margins. So excited about that. As you noted at Investor Day, we talked about kind of going after it in a couple of different ways, looking at how do we do that within the restaurant. That work continues. And then we also talked about a test that we're doing around this Cosmics brand that we put in in Texas and, you know, looking at a number of stores there. I'd say that the learning with Cosmic continues. So you saw us announce a few months ago we're closing some stores. We're adding some stores. I think what we're learning there is that there's certainly an opportunity in that space. The smaller units tend to perform better. You can want to drive through with that. Some of the things that we're closing were sort of end caps with no drive-throughs. So I think we're continuing to learn there. And as we kind of further refine our plans, I think you'll hear more from us about how much of that opportunity needs to come through new units, with something standalone like Cosmics, or how much of the potential do we think we can capture by doing more within the existing restaurant, and there's a lot of work going to thinking about what we might be able to do to capture that opportunity in the current restaurant. So our focus is still very much on it, but I don't have a whole lot more new news to share on that at this point. |
4,448 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Jeff Bernstein: We have time for one more question. With Jeff Bernstein of Barclays. Great. Thank you very much. Question on the US commentary that's been made on the call, I think you mentioned at one point seeing sequential improvement in the US comp since the trough with E. coli in November. Yet I know in response to a different question, you said that you'd noticed maybe a sluggish start to 2025. The QSR segments. I was wondering first and foremost, whether you can comment on whether or not that sluggish start is really weather-led or whether you think there's some maybe change in consumer behavior in recent weeks or the past month or two. And I know separately you mentioned new product news. So I'm just wondering if there's any color you can share on the snack wrap relaunch timing, and I think you mentioned something about chicken strips. So any color on those two new products that seem like exciting new news would be great. Thank you. |
4,449 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thanks, Jeff, for the question. So I think yes, we were seeing improvement certainly from kind of the trough of where we were with E. coli. I think the important thing to just recognize in the US is broadly both in Q4, but frankly, it continues into Q1, there's the overall market is pretty muted. And a big part of it that sort of, I think, more mixed consumer is still at that low-income consumer. So if you look at the low-income consumer in the US, and I'm talking industry numbers right now, that low-income consumer in the US in Q4 was still down double digits. And as you know, that low-income consumer is overweighted in the industry relative to the US in total. If you think about middle and higher income, a very robust consumer in those things. In those areas. So, you know, I think that's the landscape that we're looking to navigate through. Why we've been so important that we make sure that we have a strong value program, which is the focus in Q1 in getting McValue launched. And then as you alluded to, we do have, I think, some very exciting food news, food innovation coming in the US, but my US team would kill me if I gave any more details about the when and the exact specifics of how we're going to plan on doing that, but certainly expect that to come online later in the year. |
4,450 | MCD | 4 | 2,024 | 2025-02-10 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Well, just, I think, just double-clicking on what Chris already talked about, Jeff, which is sequential improvement. But and I think it goes back to what we've talked a fair bit about is, obviously, what we're focused on is what we can control, which is our share performance. Obviously, we continue to grow share from a traffic standpoint. But as Chris said, the industry is still seeing a fair bit of headwind, and that's certainly what we were giving an indication of in terms of January. So even though we may continue to expect to continue to grow share, I think the industry itself has certainly had a sluggish start, and that's certainly, as Chris said, partly due to that lower-income consumer. Although we continue to do well with lower-income consumers. In fact, quarter four was our high point for 2024 in terms of share with that particular consumer group, even though they are under a fair bit of pressure as you heard from Chris. So that's just a bit of texture maybe to kind of put the context of our comments together.
Operator: Okay. That concludes our call. Thank you, Chris.
Scott Meader: Thank you, Ian. Thanks, everyone, for joining. Have a great day.
Operator: This concludes McDonald's Corporation Investor call. You may now disconnect, and have a great day. |
4,451 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Operator: Hello, and welcome to McDonald's Third Quarter 2024 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. Scott Meader, Interim Treasurer for McDonald's Corporation. Mr. Meader, you may begin.
Scott Meader: Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski; and Chief Financial Officer, Ian Borden. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then re-enter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris. |
4,452 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thanks, Scott, and good morning, everyone. I look forward to sharing our third quarter performance and the progress we have made on key initiatives against a challenging backdrop for the QSR sector. Before I do that, I want to address the recent E. coli cases related to slivered onions in a handful of US states. While the situation appears to be contained and though it didn't affect Q3 numbers, it's certainly an important development, which I know is on many of your minds. For over 70 years, McDonald's commitment to food safety has been uncompromising. Nothing is more important to us than the safety of our customers, and we've been proud of our industry leadership in this area. The last serious public health issue in the US associated with McDonald's occurred more than 40 years ago. The recent spate of E. coli cases is deeply concerning and hearing the reports of how this has impacted our customers has been wrenching for us. On behalf of the entire system, we are sorry for what our customers have experienced. We offer our sincere and deepest sympathies and we are committed to making this right. One of our core values is to do the right thing and that has been and will be our guide as we address this situation. After the CDC first informed us of the investigation, we were able to quickly link the cases identified to slivered onions from one facility at our Taylor Farms supplier. We swiftly removed them from our supply chain. We understand from health authorities that slivered onions from Taylor Farms Colorado Springs facility are the likely source of contamination. McDonald's has stopped sourcing onions from this facility indefinitely. Importantly, the Colorado Department of Agriculture confirmed on Sunday that they did not detect E. coli in the samples of beef patties from our restaurants and have no further plans to test. This supports our investigation that ruled out Quarter Pounders patties as the source. Based on this information, we are confident we can return Quarter Pounders to menus. |
4,453 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Quarter Pounders patties as the source. Based on this information, we are confident we can return Quarter Pounders to menus. On Sunday, we announced that our beef suppliers are producing a new supply of fresh beef patties in the impacted areas and we expect all restaurants in the US to resume the sale of Quarter Pounders in the coming week. We are proud of our franchisees' unwavering commitment to food safety and for executing our stringent food safety procedures. Doing the right thing also means communicating openly and transparently. Our US President, Joe Erlinger, has been regularly sharing updates with the system of the actions we are taking and Joe will continue to do so as the investigation begins to wind down. As I said at the outset, serving customers safely is our top priority. We'll never compromise on that. I want to thank the health authorities for their strong partnership. I'm relieved that this situation appears to be contained and I remain confident in the safety of eating at McDonald's. Let's turn now to the update on our performance in Q3. On our last call, we shared the QSR sector had meaningfully slowed in many of our markets with industry traffic declined in several major markets, and that consumers, especially those in the low-income category, were choosing to eat at home more often. This trend continued in the third quarter. QSR traffic has remained pressured, reflecting industry-wide challenges. And while we anticipated a challenging environment in 2024, our performance so far this year has fallen short of our expectations. While the QSR industry has slowed, we recognize that there are still many factors within our control to impact performance guided by our Accelerating the Arches strategy. We're encouraged by signs of progress in the third quarter and the more consistent market share traction we are seeing, especially in the US, which included strong compelling value platforms, which is fundamental to the McDonald's brand promise, menu innovation, which excited our customers with |
4,454 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | value platforms, which is fundamental to the McDonald's brand promise, menu innovation, which excited our customers with great-tasting food, and strong marketing prowess that drove engagement on higher-margin core items. We have spoken before about our customers recognizing us as the value leader versus our key competitors, but our value leadership gap has shrunk. In response, we have moved with urgency in partnership with our franchisees to improve our value offerings in most of our major markets. Some examples that have launched in the quarter are the €4 Happy Meals in France, 3 for £3 in UK, and in Canada, we're providing value to our customers through price-pointed coffee starting at just C$1. And to provide our customers with simple everyday affordability they can count on, we are employing strategies that are designed to work together to generate sustainable guest talent-led growth and increase market share. As we have said before, we view good value as including both entry-level items and meal bundles at affordable price points. This means offering Every Day Affordable Price menus, or EDAP, in our markets. At McDonald's, we define EDAP as a platform with an assortment of items all priced at compelling entry-level price points, generally including breakfast, beef and chicken sandwich options. We will pair EDAP platforms with strong meal bundles to provide our customers with entry-level meals at affordable price points. Blending EDAP and meal bundles under a branded value platform allows us to invest in and build recognition and affinity with our customers. So, when they're thinking about an affordable option for food, we're top-of-mind, which is why we've been able to capitalize on branded equities like Loose Change in Australia and the Saver platform in the UK for over 10 years. Value and affordability will remain at the forefront of our conversations with markets around the world as we continue to monitor the environment and listen to our customers. We spoke last quarter about our belief that delivering |
4,455 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | as we continue to monitor the environment and listen to our customers. We spoke last quarter about our belief that delivering value and affordability in markets will have a positive halo effect on the business. And that's a great segue into the work we've driven across the MCD growth pillars this quarter, where we see compounding effects between our value offerings driving traffic and our full-margin promotions growing average check. Recently, we launched the Collector's Edition campaign, which brought back some of our most loved keepsakes with a twist, giving fans a memory that they can hold in their hands. Running in over 30 markets, the campaign featured core equities across all dayparts and drove high-check, full-margin traffic into our restaurants. Collector's Edition captured our fans' attention while keeping operations simple and giving customers more reason to purchase core menu items. The campaign drove customers to our restaurants, especially in the US where the promotion ran alongside the $5 Meal Deal. Collector's Edition maximized the power and scale of our global brand, while ensuring local flexibility and cultural relevance to connect fans in unexpected ways. Similarly, the UK&I market leaned into a One McDonald's Way for creative excellence by tapping into a winning formula starting in our US market. The UK's near-sellout of the Grimace Shake promotion in 48 hours is proof that when we share and scale world-class ideas across markets, we can maximize impact and have our creative work harder for us. Australia also followed suit by bringing Grimace Down Under at the beginning of October with both the world-famous Grimace Shake and the Grimace Meal. And that same formula, listening to our customers, investing in innovation, and pairing that with fresh marketing ideas is working across our core menu offerings as well. We have spoken at length regarding the potential of chicken, which is a massive category worldwide that's twice the size of beef and growing much faster. There is significant room for us |
4,456 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | which is a massive category worldwide that's twice the size of beef and growing much faster. There is significant room for us to grow our share and we're working to meet the moment and take advantage of its growth. We have continued to see strong progress this quarter with the majority of our largest markets growing share. The US took an exciting step to evolve their menu offerings at the beginning of the month with a limited-time, full-margin offering that has proven successful across several markets in prior years, the Chicken Big Mac. And our plan to scale the McCrispy equity across nearly all our markets by the end of 2025 is on track with the McCrispy Chicken Sandwich that is expected to be available in over 70 markets by the end of 2024. Chicken isn't the only focus in our menu innovation efforts. The pilot of our larger burger offering, Big Arch, now in three international markets, Portugal, Germany, and Canada, shows that we're listening to consumer taste and delivering. We're encouraged by the results showing the Big Arch has universal appeal with sizable opportunity across markets. And thanks to the success of the pilot, we're accelerating plans and will work with franchisees and partners to deploy the Big Arch faster into more international markets in 2025. Finally, as we consider our 4Ds, after a successful pilot of Ready on Arrival, or ROA, in the US, we are working with the rest of our top six markets to deploy this technology by the end of 2025. We know from the US that ROA helps not only with smoother restaurant execution as crew can better sequence in the kitchen, but also drives higher customer satisfaction scores by reducing wait times. And by building one of the largest loyalty programs in the world in just a few years, system-wide sales to loyalty members in the quarter totaled nearly $8 billion globally, with our aim to reach 250 million active users by the end of 2027, well within our reach. We continue to demonstrate how markets are getting smarter and closer to the customer by employing |
4,457 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | 2027, well within our reach. We continue to demonstrate how markets are getting smarter and closer to the customer by employing a multichannel strategy. We know as we drive loyalty adoption, we increase the frequency of visit and the spend from these customers over time. Despite the external challenges we are facing, the bright spots we see in execution and performance are clear indications that Accelerating the Arches is the right strategy to grow our business over the long term. We know we have more work to do to sustain guest count-led growth and continued market share gains, but I am very confident in our growth strategy and our ability to deliver outstanding execution for our customers. Now, I'll turn it over to Ian. |
4,458 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Thanks, Chris, and good morning, everyone. We acknowledge that our performance so far this year has fallen short of expectations, with negative global comp sales for the quarter amid a challenging industry environment. However, US comp sales were positive for the third quarter, which was driven by taking action on what we can control, providing compelling value, generating menu excitement, and using the full power of our marketing. As a result, the US outperformed the QSR industry comp sales and comp guest counts for the quarter. In fact, this quarter's comp guest count gap to most near-end competitors was the highest since the first quarter of 2023. This was achieved through a combination of more compelling value through the $5 Meal Deal, alongside great marketing such as the Collector's Edition campaign, which delivered a significant increase in average check for its two-week run before selling out. Consistent with what Joe said last quarter, we wanted to see three things from the $5 Meal Deal: first, improve brand perceptions around value and affordability; second, making sure it connected with the single user, especially the lower-income consumer; and third, a shift in guest counts to drive both the short- and long-term health of our business. The $5 Meal Deal has done just that and continued drawing customers back into our restaurants throughout the quarter, maintaining an average check north of $10 and being profitable for our franchisees. We saw increased traction, particularly with low-income consumers successfully growing traffic share with this group for the first time in over a year. That is why, together with our US franchisees, we've committed to extending the $5 Meal Deal into December as we work towards sustainable guest count-led growth. Looking forward, our US leadership team is solidifying the details behind the future US value platform, working together with our franchisees to get it right for our customers by blending the best thinking from around the world as well as our own |
4,459 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | with our franchisees to get it right for our customers by blending the best thinking from around the world as well as our own history in the US. We have plans to introduce the more holistic US value platform in quarter one next year. While value has been at the forefront of conversations, we have remained laser-focused on running great restaurants. We ignited our restaurant crew's competitive spirit in the US by running competitions aimed to increase guest counts, improve the speed of service, and refine our digital execution, and it worked. The US customer satisfaction scores reached an all-time high and service times at the drive-thru have dropped by double-digits compared to last year. This focus on operational excellence was also true internationally, where across all big five IOM markets, we increased customer satisfaction scores compared to last year. And while we will continue to focus on ensuring we have the right price points for our customers, we will not forget about all of the intangibles that create great value, knowing that providing a great experience, particularly now is fundamental. Turning to our international business, our internationally operated market comp sales were negative for the quarter, reflective of the contracting QSR industry where customers continue to be more intentional with the dollars they spend, mostly driven by France and the UK. While we continue to have opportunity on value and affordability in France, we have started to see signs of improvement in market trends since the launch of the McSmart menu. We also know that we have an opportunity with families and the €4 Happy Meal, which commenced in late August, is providing an uplift to that category. We are working at pace with our franchisees in IOM markets to offer everyday affordable price menus coupled with entry-level meal bundles as we are not consistently delivering both in all markets today. We will continue to take a forensic approach to evaluating our offerings, acting with agility to ensure we are delivering |
4,460 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | We will continue to take a forensic approach to evaluating our offerings, acting with agility to ensure we are delivering against the expectations of our customers. We are beginning to see progress. For example, in the UK and Germany, we have grown traffic share in environments that have further deteriorated since Q2. The UK drove excitement amongst customers by providing compelling value propositions across all occasions with the return of the 3 for £3 menu by providing a £2.79 breakfast bundle and by capitalizing on consumer excitement through the launch of the Grimace Shake discussed earlier. And being further inspired by the success seen in the US, the UK recently launched a £5 meal bundle to further strengthen value positioning. And in Germany, we saw another great example of layering on a full-margin item with the Big Arch pilot on top of an already successful McSmart platform providing halo effects to the business. And building upon McSmart's success, Germany enhanced this platform with the launch of an expanded McSmart menu at the end of September. This extended the range of affordable meal bundle options at different price points to meet our customers where they are and we are seeing a strong initial consumer response and positive incrementality. And in our IDL segment, positive comp sales in Latin America were offset by the impact from the ongoing war in the Middle East, as well as performance in China continuing to be negatively impacted by weaker consumer sentiment and spending. As we have stated before, as long as the war in the Middle East continues, we expect our business to continue to be impacted. Turning to the P&L, adjusted earnings per share was $3.23 for the quarter, an increase compared to the prior year of about 1% in constant currencies. Despite the pressured consumer spending environment, we've discussed this morning, top-line results generated over $3.8 billion in restaurant margin for the quarter. And our year-to-date adjusted operating margin of nearly 47%, highlights the durability |
4,461 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | in restaurant margin for the quarter. And our year-to-date adjusted operating margin of nearly 47%, highlights the durability of our business model. Results for the quarter reflected lower G&A spend, primarily due to lower incentive-based costs and continued prioritization around current year run the business spend. We continue to invest in our strategic transformation efforts, focused on forward-looking investments that will drive long-term growth and efficiency. As expected, results also reflected higher interest expense. And we now expect the company's interest expense to increase by approximately 11% for the full year. And our adjusted effective tax rate for the quarter was about 21%. With respect to the remainder of the year, we are reaffirming the other aspects of our financial outlook for 2024 under the assumption that the public health situation that Chris spoke to upfront will not have a material impact to our business. And finally, in September, our Board of Directors approved a 6% dividend increase to the equivalent of $7.08 per share annually. This marked the 48th consecutive dividend increase, reinforcing our continued confidence in the Accelerating the Arches growth strategy and our ability to continue to drive long-term profitable growth for all stakeholders. We remain consistent in our commitment to our capital allocation priorities: first, to invest in opportunities to grow the business and drive strong returns; and second, returning remaining free cash flow to shareholders over time through our dividend and share repurchases. And with that, let me turn it back over to Chris. |
4,462 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thank you, Ian. One of the things we're known for is our ability to innovate and grow our business at an unmatched scale, while still using our influence to help have a positive impact on the communities in which we operate. Giving back has been a celebrated part of McDonald's culture since the beginning. In the wake of Hurricanes Helene and Milton, it has been incredibly challenging across the Southeast US. As a system, we will be contributing more than $2 million in direct and in-kind aid, which includes crew relief efforts and serving roughly 50,000 free hot meals to our most impacted communities across North Carolina, Georgia, and Florida. Thank you to our franchisees, suppliers, and everyone across the entire system for doing all they can to help those impacted in those areas. Furthermore, I'm extremely proud of the work the McDonald's system does on a daily basis to prioritize driving change toward a more sustainable and inclusive future. Recently, we shared that in 2023, we reduced barriers to employment for 2.2 million young people in communities around the world through training programs and job opportunities, two years ahead of schedule. And, we raised $53 million in 2023 through our roundup for the Ronald McDonald House Charities program. In fact, this year we are celebrating the Charity's 50th anniversary. Whether it's charitable contributions across all three legs of the stool and from customers, volunteering at more than 250 local chapters or product promotions benefiting the charity, the impact of RMHC and McDonald's partnership over the past five decades is profound and we are proud to be its founding and forever partner. When our system works together to put our customers and communities first, there are a few things we can't achieve. McDonald's is not a stranger to adversity, but we have always risen to the challenge and come out stronger as a business. While there is still work to be done when we execute with precision, whether through a sharp focus on delivering great value |
4,463 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | While there is still work to be done when we execute with precision, whether through a sharp focus on delivering great value or by staying culturally relevant with global campaigns like Collector's Edition, we do succeed even in tough environments. This is why I am confident that Accelerating the Arches is fit for purpose and we have the right plan in place to make our restaurants and company stronger than ever. And with that, we can transition to Q&A. |
4,464 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Operator: Thank you. [Operator Instructions]
Scott Meader: Our first question is from David Palmer with Evercore.
David Palmer: Thanks, and good morning. It should probably be said that you had done a great job in those four months leading up to this food safety issue and really stabilizing traffic with the 4 for $5, a lot of this might have seemed unlikely back in May or June. And then, it seemed like you're really reinflation the check with the Chicken Big Mac. So, obviously, a shame on many levels that this has gone down like this, but I guess the question now is, how can you adjust? How can you help the consumer move on from a marketing stance and maybe a plan going forward? I know you're not going to on a public call to share your monthly plans here, but what are some of the things that you can do or have done in situations like this to help improve the trajectory in sales and help the consumer move on after these food safety headlines? Thanks. |
4,465 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Hi, David, it's Chris. Thanks for the question. And let me just say again that we are certainly very sorry if someone got sick at our restaurant for eating an onion that we used on our QPC. And I am relieved that I think we are now past this and on the road to getting back to serving our customers as we are used to doing. I think you raised an important point, which is how do we make sure that we are reinforcing the trust that we've earned over the years with our customers on food safety. And I'd say it starts with how we've handled this issue. And I think as you've seen, we have tried to be very transparent on this issue. We worked very collaboratively with the health authorities and we took very swift and decisive action. So, I think the first thing is just how we've handled the issue. Now that we're moving and we view it as being behind us, you're bringing up the second point, which is how do we get the momentum back in the business that we clearly saw leading up to this very unfortunate event. And I think there's a variety of things there. I think certainly, we're seeing success with the $5 Meal Deal. We're going to have food innovation as well in Q4. We're going to continue to be driving digital. And I think we stand ready to do more if we need to, to make sure that we are bringing the full resources of McDonald's to bear to reengage that customer. So you saw, out of COVID, we made some moves and we did some things to make sure that we could reengage the customer. And if we have to make some of those same moves in the US, we're prepared to do that. So, I think it's going to be a combination of getting back to what was working prior to this very unfortunate event and then supplementing it as needed with additional activity to make sure that we get that customer back into the restaurants.
Scott Meader: Our next question is from John Ivankoe with JPMorgan. |
4,466 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Our next question is from John Ivankoe with JPMorgan.
John Ivankoe: Hi. The question is on value, and I want to position it in a way that, in certain cases, McDonald's has talked about kind of one global solution to certain platforms. I mean, I think about the McCrispy, which is a global product, but value was something that was expressed within countries and even within a country, in a lot of cases, actually dependent on the app to communicate value on a personalized level to customers. Now, tell me if I'm wrong, but I do sense a shift that value will kind of be communicated more on a global basis with items under a certain price point and combos, what have you, and that does seem to be a fairly significant shift back to what we were talking about in the past one to two years ago. So, I guess just relative to your expectations, what really did change from a value perspective that we're kind of thinking about more global solutions at this point? And can we get to a point when the app is really the driver of the value in the future, or is that something that is just going to take a little bit more time to come? Thank you. |
4,467 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Hi, John, it's Chris. Thanks for the question. It gives me an opportunity to just clarify. I can tell you absolutely categorically positively, value is done at the market level. We do not come up with global value solutions that then get top-down out to the market. It's something that's very core to this business, which is value, as you pointed out is inherently a local decision because of the local competitive set, things going on in that country. So, this has been and will continue to be something that is driven at the market level. I think maybe what you're seeing is we are getting better at sharing frameworks and strategies that are working. And when we find something that's working in one market, certainly it would be -- we'd be remiss if we didn't share that learning and opportunity with other markets to pick up on. So that's where you've seen things like McSmart, that's been picked up by a number of different markets, but with the execution varying underneath that. So, I think the way I would look at it is, we have a global framework on how we think about value and there's a number of different ways to deliver value. We talk about -- you need to have a strong EDAP platform, which means entry-level price points that can bring the consumer into the restaurant. You also need to have meal deal programs that would be like the $5 Meal Deal that you saw in the -- that you're seeing currently in the US. And then, you can overlay on top of that in-app offers, promotions, other things like that. So that would sort of be the general framework of how we think about value and what we have learned through all of our experience on what works, but how that gets applied is very much left at the market level. |
4,468 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: And maybe just to build John to Chris' points, which I think just because you talked about digital, I mean, digital certainly continues to grow in importance, but it's still a minority of our customers. And obviously, over the mid- to long-term, digital will become a much bigger part and then we'll obviously bring value to life at an individual level with a lot of data and insights, which allow us to really effectively target value that's most relevant for that individual consumer. But I think it's still going to be quite a while where front counter value, so to speak, is going to continue to be important. And obviously, right now, that's the area of greatest opportunity and why we're focused on getting that right, as Chris talked to.
Scott Meader: Our next question is from Dennis Geiger with UBS.
Dennis Geiger: Great. Thanks, guys. I just wanted to come back to any additional insights on the public health situation. I know you mentioned that you're not expecting it to have a material impact on the business. Just if anything, either kind of on latest trajectory, anything on expectations going forward, if I interpreted that comment correctly, or any other financial implications to call out here? Thank you. |
4,469 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah, good morning, Dennis. It's Ian. Let me deal with that one. And I think it's a good question and obviously one that I think is important to answer. So, just bear with me for a couple of minutes because I just want to give some upfront context and then I'll get back to specifically what you asked. I mean, I think, our US business has done a really nice job of kind of responding to the heightened expectations from customers around value and affordability with the $5 meal. And then, as Chris talked about, really combining that with great marketing execution through things like the Collector's Edition or as we saw in early October, LTO events or menu excitement like the Chicken Big Mac, and that's where we kind of get that one plus one equal to three outcome, which is more customers visiting and more of those customers spending more in those visits drive-in, check-in and obviously profitability. We talked about in the opening remarks that the US has significantly outperformed the QSR industry with comp, guest count, and traffic gaps at their highest point since the beginning of '23. And then, we also talked about that $5 meal doing exactly what we had kind of set out to have it achieve. Two of those things that I think are really important is, for the first time in over a year, we gained share with lower-income consumers, and we also saw that customers that were buying that $5 meal were also visiting us more frequently. So, if you think about us getting back to guest count-led growth, I think certainly those things were starting to come to life. We ended the third quarter on an upward trajectory in the US business. And then, obviously, we started our Chicken Big Mac LTO on the 10th of October. And I would say if you looked at just the first three weeks of October in the US business, we had comp sales of close to mid-single-digit positive and comp guest counts positive, just a little bit below that. So, a really strong start to -- a really strong finish to the end of the third quarter, a really |
4,470 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | just a little bit below that. So, a really strong start to -- a really strong finish to the end of the third quarter, a really strong start to the fourth quarter, when you consider that we were still operating in a very challenging broader industry context. I mean, I think, of course, as you would expect, there's been an impact in the US business as a result of the food safety incident, and that positive momentum that I just talked about, we saw that shift to kind of having daily negative sales and guest count results since the beginning of the food safety incident. I mean, I think as Chris talked about, our focus has been on obviously moving swiftly and decisively, working closely with all the relevant health authorities to protect consumers, getting to a clear understanding of the root cause, and obviously trying to bring clarity for everyone as quickly as we could. And certainly, now that that's been addressed, as you heard Chris talk about, we're working to kind of get Quarter Pounders back on our menus and all of the limited number of restaurants that were impacted. I think what I would say is we certainly believe the most significant events are behind us and the work to do right now is focused on restoring consumer confidence, getting our US business back to that strong momentum that I just talked about. I think we're really confident in our ability to do that. |
4,471 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Our next question is from David Tarantino with Baird.
David Tarantino: Hi, good morning. Just maybe to follow-on the last comments, Ian, and maybe Chris can comment on this. With respect to the advertising message that you're thinking about over the next three to six months, a lot of it's been focused on value and you've had success there and some great initiatives, but I'm wondering if you think some of those dollars are going to need to be allocated towards a message about the brand and restoring sort of the confidence in the brand fundamentals as opposed to being so focused on value and product initiatives, at least in the near term?
Chris Kempczinski: Yeah, thanks, David. We're going to do what we need to do to get the growth back into the business. And certainly, if there's an aspect of that, which is around reassuring the public, we're prepared to do that. I think I don't view it as an or, I view it as an and. I think we can do both. I think we can make sure that we're communicating the steps that we've taken and if there is lingering unease out there to be able to address that. At the same time, I think we can also continue to be driving value and I think we can be driving marketing news. And so, one of the things about McDonald's is we have, I think, ample resources to address whatever the business opportunity is, and we're prepared to do that. I know the US team right now is actually, over the next couple of days, engaging with our franchisees, thinking about what our plans need to look like, and I'm sure this will be a topic of conversation. But we're going to do what we need to do to make sure we've got to get the momentum back in the business.
Scott Meader: Our next question is from Brian Harbour with Morgan Stanley. |
4,472 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Our next question is from Brian Harbour with Morgan Stanley.
Brian Harbour: Yeah. Thank you. Good morning, guys. Ian, I appreciate the comments just kind of on the US, recently. I guess some of the other pieces in 4Q, and I know you're kind of sticking to the overall annual guidance for the most part. Do you -- should we infer though that there is -- you are seeing kind of some traction in IOM and IDL and you think that there can be some sales momentum there as we go into the fourth quarter? Do you think that SG&A is still kind of similarly favorable as we saw in 3Q? And just any other kind of key moving parts as we think about the last quarter of the year? |
4,473 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Yeah. Thanks, Brian. So, I think a couple of things. I mean, I think on, in the IOM markets, as you heard us talk about in our upfront remarks, I mean the industry environment remains challenging. There's no doubt about that. I mean, I think consumers are under pressure. The industry is contracting in a number of our largest IOM markets. And in fact, that contraction worsened in the third quarter in several of those markets. Obviously, as a result of that, I think consumers continue to be discerning with where, with whom they're spending money and some of those consumers are certainly choosing to eat out more often. I think the consumers -- I think while there's broad consumer pressure, I think certainly lower-income consumers and families are consumers that are under more acute kind of pressures, I think on disposable income, obviously, two really important parts of our consumer base. I think for all of those reasons, it's why, obviously we have such a heightened focus on value and affordability, and making sure we get that right for the context we're in each and every one of our markets. I think the US results are a really strong data point that when we get that right, get that value and affordability proposition right, we're going to win in the environment we're in and we're going to obviously win better, I think than anyone else is doing and we know we can continue to drive better momentum even in those more difficult contexts. I think we're certainly seeing what I'll call some early signs of progress in several of our international markets, where we are seeing that our comp -- guest count or comp traffic gap versus our near-end competitive set is positive, but we want to get that in place in every one of our key international markets. We want that to be as strong as we feel the opportunity exists for it to be and we want to make sure that it's consistent. And so, I think there's more work to do on that front. Obviously, we're continuing to move at pace to get that in place. And I think you'll |
4,474 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | there's more work to do on that front. Obviously, we're continuing to move at pace to get that in place. And I think you'll see a few more things coming in over the next quarter or so around that so that we are in a position to be best placed in '25 irregardless of the context around us. And we're going to obviously continue to measure our performance through, are we taking share irregardless of that environment. I think on G&A, look, obviously, when G&A, the metric is as a percentage of sales and you've got pressure on sales, there's going to be obviously some implied pressure on that G&A metric. I think we are trying to do everything possible. And as you saw, we expect to be able to continue to deliver against our guidance this year. We're doing that obviously because we've got some relief on kind of the incentive-based part of G&A, but we're also being very disciplined in our current year spending in areas like travel, meetings, professional services, all the things that you would expect us to be doing in the current context while continuing to invest obviously in our enterprise transformation efforts and the strategic growth opportunities that we have in areas like digital and technology, which we know are critical to ensure we have a strong growth pipeline as we look forward. |
4,475 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Yeah. I would just add, and maybe reiterate what Ian said, we are seeing a tough industry, UK, France, Germany, Australia, those are all markets where the industry traffic is down. That said, we are either gaining share or seeing sequential improvement in all of our major markets, which is encouraging. But I would also tell you, I'm not satisfied with the pace. And I think there's more that we need to do to step up and accelerate. There's a number of adjustments that are being made in each individual market to augment their value programs. And I think we have an opportunity to overlay on top of that some stronger marketing efforts as well. So, seeing progress, but I'm not fully satisfied with the pace on international, and that's the focus for us as we close out this year is making sure we get off to a fast start in 2025.
Scott Meader: Our next question is from Sara Senatore with Bank of America.
Sara Senatore: Thank you. A clarification and a question, please. The clarification is just you talked about the average check at $10 for those checks that have a $5 meal. I think though that might be lower than what your -- overall your aggregate -- your average averages, if you will. So, as you think -- as you launch this kind of holistic value platform, should I be thinking about perhaps a negative mix headwind for the -- maybe the year ahead just as there's sort of a reset in ordering pattern, I mean, with the recognition that your traffic gains are certainly the -- should be and are the priority? So that's a clarification. And then, just a question on -- it looks like McOpCo margins were a bit lower than we expected, maybe because of value, but maybe because of deleverage. Is there anything in this margin dynamics or sales trends that your franchisees are seeing that would change how they think about adding new units as you look to accelerate unit growth? Thanks. |
4,476 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Good morning, Sara. Let me start on that and then I'll let Chris weigh in if he wants to add anything. I think on the $5 meal, as you picked up a check north of $10, that is slightly below our overall average check in the US, but we consider that to be a really strong check when you look at obviously the $5 price point. I think if you go back to what I talked about a little bit earlier, I mean, obviously, what we're trying to do with stronger value and affordability is drive more traffic and more guest counts. And as we bring more traffic and guest counts into the restaurants, we're pairing that with things like the Collector's Edition or the Chicken Big Mac LTO, that's where we're going to get that check growth and profit growth. So, we're not worried about that maybe that -- let's call it that value component, because at the end of the day, we've got to have that in place, I think, to be competitive and to drive market share progress and we feel really good that if we -- as we execute on marketing -- great marketing, as we execute on great menu news, that's where we're going to get consumers spending more, which will drive obviously the check and profitability as we saw towards the end of the third quarter and as we saw in the start of the fourth quarter, as I talked about earlier. So that's the dynamic there. On McOpCo margin, you're right, they did come in, obviously -- it did come in on a percentage basis, a little lower in the third quarter. I think there were a number of things at play there. Obviously, we still have pretty muted top-line growth, which is going to put pressure on margin from a percentage standpoint because we still have cost impacts that are hitting the business. I think if you just use the US as a specific example, we've got just above kind of mid-single-digit wage pressure, which is obviously coming in large part from the more significant increases in California earlier in the year, plus obviously overall wage increases, so you've got that pressure. You've still got |
4,477 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | in California earlier in the year, plus obviously overall wage increases, so you've got that pressure. You've still got commodity pressure even though this year we expect '24 increase in commodities to be in that low single-digit range. We've got some carryover impacts from higher inflation rates in '23 through the first part of the year, and still some increase there. So, you've got cost pressures, more muted sales growth. And then I think for sure, there's a little bit of an impact from I think the affordability positioning. I mean, obviously, that's an investment, a short-term investment that we think is really important to make because obviously, we grow margins and we grow profitability by growing volume and we want to be in a position to be able to do that. And clearly, that $5 meal is doing exactly what we want in that area. So, we feel really confident about our ability to grow margin percent over the mid- and longer-term as we drive that stronger traffic and volume growth in the business. |
4,478 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Maybe I'll just clean up the one other thing that you asked about, Sara, which was around development. And right now, we're seeing good returns on our new units. As we look at the US, we're on pace to hit our development goals in the US. It's certainly something that we pay very close attention to, but right now, from our vantage point, we don't see any impact to our development goals. And as you know, as we've talked about on prior calls, this is something that we spent a fair bit of time looking at it and being pretty detailed in our assessment of the opportunity and we make these decisions over a longer time period. There will be ups and downs with the business, but from our vantage point, the long-term development opportunity that we saw in the US that stays intact.
Scott Meader: Our next question is from Eric Gonzalez with KeyBanc.
Eric Gonzalez: Hey, thanks for the question. Just as a follow-up to that with regards to the $5 meal, on the last earnings call, it seemed like the traffic lift was more than offset by the lower mix as the consumers trade down, but as we move through the quarter, I'm guessing those comp dynamics shifted more favorably as it was paired with the Collector's custom more recently with Chicken Big Mac. So, if you can comment on that and discuss how that experience is shaping the discussion with your franchisees around the more permanent value contract that I think [you said slated] (ph) for the first quarter? |
4,479 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Sure. As we talked about, I think what we've seen is, it's a pretty simple formula at the end of the day on what you need to do to get that good balance of traffic and sales growth in the business. You need to, at the foundation, have a strong value proposition, and that's been the focus for us in a number of our markets, either strengthening, adding to, adjusting our value programs so that we have that good foundation. You need to then overlay on top of that food news that can excite the customer and you have to have great marketing behind it. And when you do that with news and great marketing, you can get a strong full-margin check that goes along with some of those value programs. And I think that's exactly what we saw in the US. You had the $5 Meal Deal, but you also had things that were growing margin in check getting added on top of that. So that's the focus for us in all the various markets is strong value programs, great food news and innovation paired with strong marketing. And if we execute and do that well, which by the way is the essence of our Accelerating the Arches strategy, when we do that well, the business responds. |
4,480 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: And maybe just the only kind of build I would make on that is if you just go back to, I think what Chris talked about in his opening remarks, so if you look at food news like the Big Arch that we've had in three pilot international markets for the last several months, where we're seeing really strong results. So again, I think there's certainly demand from consumers for that exciting food news when they visit us, obviously, they still are buying and these promotions or activities when they're done well are resonating really well. I mean, you heard us talk about the Collector's Edition where we ran through that in two weeks because the demand was just so strong. We saw incredibly strong demand in the first couple of weeks of October for Chicken Big Mac. So, consumers still want that excitement, they want great ideas and great food news, but obviously, for some of our consumers, they're just really looking for that value and affordability. So, we've got to get both of those in place and get them working together, as I talked about before, where we get that one plus one kind of equal to three overall outcome.
Chris Kempczinski: And I just would add, I think it was a question on a prior call about Big Arch given that it's a higher-ticket item in this environment, I think the question was, does a product like that resonate, and what we've seen in our three markets so far is, it's doing great. And that's why we've decided we're going to accelerate it into more markets next year. So, I think there's -- the consumer still sees it as a good value, albeit at a higher check, but they're also using it -- it's clearly meeting an unmet need and when we have good marketing behind it, that can be a nice add-on and complement to the overall ticket. So, those are -- that to me is just a great example of it's not all about the low entry-level price points, when you have good food news and marketing on top of it, you can get that check build that we've been talking about. |
4,481 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Our next question is from Lauren Silberman with Deutsche Bank.
Lauren Silberman: Thank you. Just a quick follow-up on the sales impact of the food safety incident. Are you seeing the impact more concentrated in the affected areas in the Midwest or is pressure more broad-based? And then, just on the US comp, can you just talk about the composition across traffic, price, and mix during the quarter? And any additional commentary on what you're seeing across the low-, middle-, and high-income cohorts? Thank you.
Ian Borden: Hi, good morning, Lauren. Well, I think as you would -- as you would expect, for sure, there is a bit more impacted in the concentrated areas where the news and attention has been a little bit more specific, and I think they're obviously just with the broader news and lack of clarity early on, there's a bit of a broader impact as I talked about earlier. But as I said, you know, I think the most significant events are behind us now, and we certainly are fully focused on getting the US business back to the momentum that we were seeing at working hard to kind of restore confidence of all of our consumers. So, I think that's a focus. I think on the -- I guess the dynamics, I won't get into a lot of detail on that. I mean I think we've talked about a fair bit about that already in the call today. I think as I said, we exited the third quarter with stronger momentum, had a really strong start to the beginning of the fourth quarter. I think the $5 meal obviously continued to work well and I think that continued to resonate even more strongly as we work through the quarter. And then, as we were getting that kind of combination with some of the menu news and marketing excitement and execution that we were delivering, we were getting a pretty strong check lift as well at points, particularly kind of towards the end of the quarter and into the fourth quarter. So, I think those would be maybe a bit of the texture that I would give you. |
4,482 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Our next call is from Jeff Bernstein with Barclays.
Jeff Bernstein: Great. Thank you very much. Just following up on the US value component. It seems like the $5 value offer response has been encouraging. I'm wondering whether there's any key metrics you can share, whether it's the mix of sales that you see from value more broadly or whether it's the $5 menu in particular, or any detail on that share growth? I think you said for the first time in over a year you've seen share growth with that low-income consumer. So, any support around that? And just to clarify, I think you said a more holistic value platform in the first quarter of '25, kind of reminds me of maybe the prior $1, $2, $3 menu where the consumer has options to choose among a variety of items. So, any color you can provide in terms of directionally what you're thinking about what that means for a more holistic value platform in the first quarter would be very helpful. Thank you. |
4,483 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Sure. Well, first on the elements of what we're seeing, I think Ian hit some of the key criteria that we're looking for, but certainly, when we launched the $5 Meal Deal, we wanted to see that it would improve value perception with the consumer and we've seen evidence of that. We wanted to see that it could engage the low-income consumer in particular. We've seen evidence of that. We wanted to see that it could drive guest counts. We were seeing strong evidence of that. And then, we were getting incremental check on top of that, that allowed us to have a positive lift between -- meaning that we saw comp sales growing faster than GC. So, all of those kind of key metrics that we had outlined at the outset of that program, we've seen that deliver. As you think about then what our longer-term value program needs to look like, we're not going to get into the specifics of that on this call. I alluded to that this is something that we're in active conversations right now with our franchisees on, but I think you can anticipate it's going to have a few components. It needs to have this EDAP component that we've talked about. It needs to have a meal deal component, whether that's a $5 meal deal or some other meal deal, that will be something that's included in it, and it needs to be able to incorporate some of the digital offers that we do. So, as you think about what this is going to look like, I think you can look to some of our other markets where we have platforms like either a McSmart or a Saver, where you've got a branded platform that can house all of these various individual value components. And I think that's what you should expect to see from us launching in Q1 of next year. |
4,484 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Jeff, I just might add a bit on the first part of your question. I mean, I think as you heard me talk about earlier, I mean, we had a positive comp gap versus the industry on both traffic and sales during the quarter. So that would tell you that what we were doing was resonating with all consumers, obviously, not just lower-income consumers. And that goes back, I think, to what we've talked about a couple of times today, which is strong value and affordability positioning and exciting menu news and marketing execution. So, we feel the US did a very nice job during the quarter of resonating broadly with consumers. The specific data points that we've talked about already was just -- obviously, we've gained share with lower-income consumers, which is a really important part of our consumer base is for the first time in over a year. So, I think that's a very specific and important proof point. But I think also buyers of the $5 meal are visiting us more frequently. So, we're winning more visits. Some of those visits obviously going towards the $5 meal, but some of those visits going to other things on the menu and that's what you start seeing when you start getting consumers back into the restaurants on a more regular basis. So, I think we feel pretty good about the specific outcomes, but also the broader outcomes and those proof points.
Scott Meader: We have time for one more question with Jon Tower from Citi. |
4,485 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: We have time for one more question with Jon Tower from Citi.
Jon Tower: Great. Thanks for taking the question. I guess maybe just following up on Sara's question earlier regarding store margins, I was hopeful that you could maybe provide some color on your thoughts into '25, given the dynamics that have played out this year in the market and some of the plans you have for value. And then, on top of that, just broadly speaking, how you're thinking about the brand's pricing power, more so in the US relative to other markets in the world, given the macro backdrop where it seems like we've got a mixed consumer with respect to demand and jobs? And just curious, do you think the brand can kind of price in line with inflation next year, or is it going to have to kind of track below? |
4,486 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Great. Thanks, Jon. Well, look, I think on margins, I would just go back to -- if you think about the momentum that we have been able to drive in the US business through the third quarter and at least to start in October, it's that kind of momentum that's going to be able to drive margin growth, both in percentage and dollars. And I think as you've heard us say today, we feel really confident we can get momentum back restored into the US business to where it was. And as we do that, we certainly feel confident about our ability to drive margin leverage because at the end of the day, if we've got greater volume, that's what allows us to obviously drive margins over time. So, I would say we feel good about our ability to do that as we're able to drive sales. And I think as we look into '25, we certainly feel confident in that. I think in terms of pricing power, I mean, you've heard us talk a lot about the more challenging environment, particularly in our international markets. I mean, consumers are certainly remaining resistant to pricing, but there are obviously different ways to kind of get at pricing. There's obviously taking price increases, but we've also got the ability through great marketing through full kind of margin promotions or menu excitement, things like the Big Arch, where we can get more effective pricing by just obviously influencing our mix. And I think we're going to obviously continue to be thoughtful about incremental pricing action because I think there's a lot of resistance. I think that there's pressure as a result of that on flow-through rates. I think we still feel we can get pricing, but I think that is going to be at more conservative levels until we get the right momentum back in the business in each and every one of our markets. And I think that certainly then opens up more opportunities as we look forward.
Scott Meader: Okay. That concludes our call. Thank you, Chris. Thank you, Ian. Thanks everyone for joining. Have a great day. |
4,487 | MCD | 3 | 2,024 | 2024-10-29 08:30:00 | McDonald's Corporation | 139,488 | Scott Meader: Okay. That concludes our call. Thank you, Chris. Thank you, Ian. Thanks everyone for joining. Have a great day.
Operator: This concludes McDonald's Corporation investor call. You may now disconnect, and have a great day. |
4,488 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | Operator: Hello and welcome to McDonald's Second Quarter 2024 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 Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. Cieplak, you may begin.
Mike Cieplak: Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski; Chief Financial Officer, Ian Borden, and President of McDonald's USA, Joe Erlinger. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then re-enter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now I'll turn it over to Chris. |
4,489 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | Chris Kempczinski: Thanks, Mike, and good morning, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened. The QSR sector has meaningfully slowed in the majority of our markets and industry traffic has declined in major markets like the US, Australia Canada and Germany. In several markets, we also continue to be negatively impacted by the war in the Middle East. These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments. But there were also factors within our control that contributed to our underperformance, most notably our value execution. For 70 years, McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions. This won't happen overnight, but it will happen. The unique competitive advantages of McDonald's afford us many levers to pull, and we have the financial wherewithal to sustain our investments as needed. One area of strength is our restaurant teams who continue to execute with excellence to serve our customers and local communities, creating a better customer experience has delivered operational improvements, improved service times and increase customer satisfaction across most of our major markets. And it's this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently. Leading into the power of our core menu also leads to outstanding execution in our kitchens. Our deployment of Best Burger is a great example of this. Now deployed in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect |
4,490 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect which is driving elevated taste and quality perceptions. We remain on track to have best burger deployed in nearly all markets by the end of 2026. And as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money. This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings and a tangy McDonald's sauce. It's a quintessential McDonald's burger with a twist on our iconic familiar flavors, named The Big Arch, we plan to attest and learn through the end of the year to gather learnings before scaling more broadly internationally. We continue to have a significant opportunity for growth in chicken a category that's twice the size of beef globally and growing at a faster rate. By featuring our beloved icons like McNuggets and McChicken, while driving growth in emerging favorites like McCrispy and McSpicy, our chicken sales are now on par with beef sales. The McCrispy Chicken sandwich is now offered in more than 55 of our markets around the globe and through our plans to further expand our McCrispy equity, we will continue to capture chicken market share. As we continue to build on our $17 billion brands across our core menu, our digital penetration also continues to grow. Loyalty membership has now reached 166 million members, pacing ahead of expectations as we work towards our ambition of 250 million members and identified users now represent 25% of system-wide sales. We know that engaged loyalty customers spend more and visit more often. And as a result, we're driving digital market share gains and continuing to build on our understanding of customer preference, personalization and behaviors. But as I said in my opening, we recognize that in several large markets, including |
4,491 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | preference, personalization and behaviors. But as I said in my opening, we recognize that in several large markets, including the US, we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market. As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases disrupted long-running value programs and led consumers to reconsider their buying habits. In some markets like Germany, Spain and Poland, the flexibility of their value programs like McSmart have allowed them to quickly make adjustments that were embraced by consumers and drove market share gains. In other markets like the US with their $1 $2 $3 value program, a more comprehensive rethink has been required. Our US President, Joe Erlinger, is on the call and will share more about our plans in just a minute. The point is, we know how to do this. We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments. McDonald's competitive strengths are formidable and growing. Our brand is as strong as ever. Yet again, Kantar recognized McDonald's as the world's fifth most valuable brand and the number one most valuable non-tech brand. We're executing with excellence, and our restaurant operations are an area of strength. Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs, and we're flexing our investment muscle to accelerate new restaurant openings as we also build consumer restaurant and company technology platforms that will drive cost efficiencies and accelerate innovation. We do not take these |
4,492 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | restaurant and company technology platforms that will drive cost efficiencies and accelerate innovation. We do not take these advantages for granted, however, and we are committed to delivering for our customers and shareholders every day. Where our customers tell us we have value opportunities, we will address them. Listening to customers and staying agile led to the development of our Accelerating the Arches strategy, and I'm confident that it remains the right playbook for our business. Continued focus on gold standard execution and our growth pillars are the right actions to grow market share and return to restaurant traffic growth. To share more on the US segment, I'll now hand it over to Joe. |
4,493 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | Joe Erlinger: Thanks, Chris, and good morning. It's been a few years since I've participated in the McDonald's earnings call. And I want to start by reflecting a bit about the progress McDonald's USA has achieved since that call back in 2021. Over the past three years, we've significantly moved the needle in several areas, like loyalty, which has grown to over 20% of our US system-wide sales and over 37 million 90-day active users. We've also improved our chicken market share with the launch of McCrispy. As I said then, it was the accumulation of our decisions grounded in our values that continue to keep the McDonald's brand relevant for our customers, and meaningful for our people, providing a strong foundation for future growth. That continues to be our approach as we're now focused on raising the bar on our customer experience, considering our customers' current reality. Since the very beginning, and Chris touched on this earlier, we've earned our success through excellent QSC&V, quality, service, cleanliness and value. And as we've evolved our approach time and again over the years to match the changing expectations of our customers, we continue to deliver an exceptional customer experience today. In this last quarter, McDonald's USA delivered its highest-ever year-to-date customer satisfaction score. While I'll share more about the $5 meal deal in a moment, both the Bacon Cajun Ranch McCrispy and Grandma McFlurry promotions drove sales, along with cultural buzz and brand relevance. All said, our business performance reflects industry-wide challenges and current context, one where customers are making thoughtful choices about when and where they eat. And while we always work hard to provide value to our customers, they're telling us that they want to see and experience even more value from McDonald's. And we're listening as we remain laser-focused on providing great value to our fans this summer and beyond. So we tapped into ideas that already exist within our system. Our restaurants in Upstate New York have |
4,494 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | this summer and beyond. So we tapped into ideas that already exist within our system. Our restaurants in Upstate New York have been running a local $5 meal deal that was highly successful, performing well with lower income customers and driving overall incremental sales. By leveraging learnings from within our own system, we brought this to life for customers across the US. We've seen a lot of enthusiasm and the number of $5 meal deals sold are above expectations. Trial rates of the deal are highest amongst lower-income consumers and sentiment towards the brand around value and affordability has begun to shift positively. To date, 93% of our restaurants in the US have committed to extending the offer even further into the summer. And there are other ways customers can experience great value at McDonald's. We continue to provide a steady stream of offers on the mobile app, including nationwide free Free Fries Fridays, where you can get a free medium fry every Friday with any $1 purchase on the app. And as we work through the important details of the future US value platform, we will continue to make decisions grounded in insights with the customer at the center. At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape. So we believe it's critical for us to consider these factors in order to grow market share and return to sustainable guest count-led growth for the brand. McDonald's is uniquely positioned to succeed in this environment, given our size, scale and competitive advantages. We have a fully modernized restaurant estate. We have a simplified menu that focuses on our core while never shying away from bringing back fan favorites at the right times or pursuing the right new product innovations. We have built one of the largest loyalty programs in the industry and we're continuing to lead with a long-term mindset, making decisions that meet our customers where they are and |
4,495 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | the industry and we're continuing to lead with a long-term mindset, making decisions that meet our customers where they are and where they need us right down, while also plotting a path for sustained success. And now I'll turn it over to Ian. |
4,496 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | Ian Borden: Thanks, Joe, and good morning, everyone. As Chris mentioned at the top of the call, despite the very real near-term challenges facing the sector, we remain confident that our long-term strategy rooted in customer insights and built on our inherent competitive advantages is right for our business. When we combine deep insights with the power of our brand, we tap into what our customers love most about McDonald's, connecting with them on an emotional level through celebrating the rituals and memories that make our brand so special. At the heart of our brand are our local communities and the customers we serve each and every day. Strong restaurant level execution against our MCD growth drivers coupled with compelling value will be critical to giving customers more reasons to visit McDonald's more often. And as you heard from Chris and Joe, we're delivering higher customer satisfaction, and improve service times across most of our major markets. Our M, C and Ds are deeply interconnected and it's at the intersection of our growth drivers that we continue to deepen our relationships with customers and create a consistent and enjoyable restaurant experience while offering the delicious and affordable food they love. As Chris mentioned, we still have an opportunity to strengthen our holistic value proposition across markets, and we recently met with each of our largest markets, we're ensuring that we have a winning value offering with front and center in every discussion. We're taking a forensic approach to evaluating our offerings and acting with urgency and agility to implement solutions to deliver against customer expectations. Germany has continued their holistic approach to value with a 360-degree affordability strategy, including McSmart at the center and are consistently driving elevated levels of customer awareness. This is a best-in-class example of listening to the customer, designing a program that meets them where they are and ultimately delivering incremental sales, customer satisfaction and |
4,497 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | designing a program that meets them where they are and ultimately delivering incremental sales, customer satisfaction and market share gains. As we scale best practices across the system, markets like France and Australia have adopted their own version of the McSmart platform, and early results have been encouraging. And in May, the UK offered smaller, more affordable bundles of their own with their 3 for GBP3 mix and match menu that resonated with customers looking for more affordable options and to address an opportunity to offer more compelling value at breakfast, which remains the fastest-growing day part in the market, the Canadian market recently launched a new price point at beverage value offering our customers the coffee they love every day starting at just $1. McDonald's has long been an affordable destination for communities to come together and share a meal but it's always been about more than just price. This quarter, we continued to elevate the experience, combining our delicious food with unique mobile app and in-restaurant experiences, ultimately delivering value, however and whenever customers decided to order and enjoy their McDonald's favorites. Germany leaned into the Easter holiday with a fun and interactive calendar promotion where customers enjoyed a daily deal available exclusively in the mobile app from discounts on our most iconic menu items like the Big Mac or Chicken McNuggets to unique meal deals the promotion drove remarkable engagement and significant growth in loyalty sales. And Italy drove traffic to our restaurants with summer days, a similar seasonal calendar campaign featuring a variety of exciting meal bundles. And a local favorite, the frequent fryer program returned to the Canadian market this quarter. To engage loyalty members with a new approach to gamification, the market launched a nationwide scavenger hunt for fry icons, which could then be entered on the mobile app for free loyalty points or free fries. Nearly 3.5 million codes were entered throughout the promotion, |
4,498 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | on the mobile app for free loyalty points or free fries. Nearly 3.5 million codes were entered throughout the promotion, driving meaningful lifts to the fry category. Even with strong execution against our Accelerating the Arches growth drivers, performance this quarter reflects a pressured industry landscape in the US as well as across many of our largest international markets. Our international operated market comps were negative, reflective of this broad-based pressure where customers continue to be more intentional with the dollars they spend and performance in France. And in our IDL segment, positive comp sales in Latin America and Japan were offset by the impact from the ongoing war in the Middle East and a less confident consumer in China. Despite the pressured top line growth we've discussed this morning, we drove adjusted earnings per share of $2.97 for the quarter, a decrease compared to the prior year of about 5% in constant currencies. This was primarily due to a higher effective tax rate of nearly 21% for the quarter, elevated interest expense as expected and less other nonoperating income due partially to lower interest income. Top line results generated over $3.5 billion of restaurant margins for the quarter and a year-to-date adjusted operating margin of over 46%, highlighting the durability of our business model. This was offset by higher G&A due to continued investments in digital and technology as well as enterprise transformation efforts and costs associated with our biennial worldwide convention. As we've talked about before, driving long-term growth requires making the right strategic and forward-looking investments, and we are committed to continuing to invest in our platforms and growth drivers, while relentlessly prioritizing current year run the business spend. While we expect industry challenges to persist, we believe we are well positioned with the unique size and scale that only the McDonald's system can provide. There remains significant power in focusing on what's within our |
4,499 | MCD | 2 | 2,024 | 2024-07-29 08:30:00 | McDonald's Corporation | 139,488 | size and scale that only the McDonald's system can provide. There remains significant power in focusing on what's within our control, offering our customers delicious food at unparalleled value and convenience that will drive future market share gains and guest count growth. With this as our North Star, we believe we're poised to deliver long-term growth for our system and our shareholders. Now as most of you know, this is Mike's last earnings call with McDonald's. So before I close, I'd like to take a moment to personally thank Mike for his significant contributions to our brand. He served as a trusted adviser to our senior leadership team by playing a key role in developing and communicating our strategy. Mike has been at McDonald's almost as long as I have and his deep knowledge of our business and ability to foster relationships with stakeholders has been invaluable to me, especially as I've taken on the role as CFO. On behalf of everyone at McDonald's, Mike, thank you. We wish you all the best for the future. And with that, I'll turn it back over to Chris. |
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