McDonald's Corporation

Hello, and welcome to McDonald's Second Quarter 2019 Investors 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. At that time, investors only may ask a question by pressing star 1 on their touchtone phone. I would now like to turn the conference over to Mr. Mike Seplak, Investor Relations Officer for McDonald's Corporation. Mr. Seplak, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call this morning are President and Chief Executive Officer Steve Easterbrook and Chief Financial Officer Kevin Ozan. Today's conference call is being webcast live and is also being recorded for replay on our website. Before I turn it over to Steve, I want to remind everyone that the forward-looking statements in our earnings release and 8K filing also apply to our comments. Both documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. And now, I'll turn it over to Steve.

Good morning. We're pleased to be speaking to you today from our corporate headquarters in downtown Chicago. where we recently celebrated our one-year anniversary in this contemporary urban facility. Returning to Chicago was a deliberate move to get closer to our customers and the trends shaping business and society today. Our new facility was designed to be a modern and inspiring environment, a catalyst for our evolving culture. A move is also a metaphor for the momentum we're seeing across our business, momentum that has been building since we first launched our turnaround plan. As we've recently passed the four-year mark, I thought it would be important to spend a few minutes reflecting on our journey. Back in May 2015, I announced our initial steps to reset and rebuild our business, including our three-fold priorities of driving operational growth, returning excitement to our brands, and unlocking financial value. At the time we were keenly aware that the pace of change inside McDonald's was being eclipsed by the pace of change outside our business. We knew we had to evolve with our changing market and consumer dynamics and we knew incremental progress wasn't going to cut it. Returning to a growth company was going to require big, bold steps and greater personal accountability. We knew success would be determined by the fast beating the slow, by choosing progress over perfection and moving with a sense of urgency. So, we set out on a journey to become faster, smarter and more responsive to changing consumer expectations. We restructured to be closer to customers and faster at the point of impact. We re-franchised to drive growth and bring greater insights at a local level. We increased accountability and financial discipline and returned cash to shareholders. Most importantly, we returned to operating growth. Indeed, within two years we established a strong foundation, one that was fit for purpose and brought the business to a place where we could begin accelerating growth again. That led to the launch of our Velocity Growth Plan in March of 2017. The plan is rooted in building on the fundamentals that have served our company so well for over 60 years. It's about running better restaurants, offering a compelling menu of delicious and affordable food, and complementing that with hospitality and convenience for our guests. We know that when we create delicious, feel-good moments for customers, every visit, every day, customers recognise our efforts and reward us with repeat visits. We also know that we must continuously complement that work with big and powerful moves that keep us relevant and inviting for new generations of guests. We deployed three accelerators to help us do just that. Our Experience of the Future, or EOTF, Digital and Delivery. With these efforts, we're focused on actions that have the biggest benefit to the most customers in the shortest possible time. That's the path to becoming a better McDonald's. Four years in, we did the hard work to put the Velocity Growth Plan and accelerators firmly in place, and we are energized by the broad-based strength in our results. For the quarter, global comparable sales increased 6.5%, which marks four full years of quarterly comp sales growth. This was complemented by positive global comp guest counts. During the quarter we made strong gains in running great restaurants. We still have work to do because speed of service is so important to our customers. Seconds matter and impact decisions they make on repeat visits. We're leveraging the power of the system, franchisees, suppliers and employees to reduce menu complexity, improve operational procedures, deploy new drive-through crew competitions and incentives, adopt best practices for staffing, and leverage new technologies to make it easier for our teams to take responsibility for performance. And we're encouraged by the results we're seeing. We set market level targets early this year and have dropped service times across many markets globally. We're providing a better experience for our customers and with that seeing record high customer satisfaction scores this summer. Here in the US, the plan we've built with our franchisees is ambitious. Collectively, we recognize the need for change and knew it would be hard work. We spent 2018 deploying major initiatives, including a new value platform, fresh beef, delivery, EOTF modernization, and the restructuring of US field operations. At the beginning of this year, we said 2019 would be a year to execute on running better restaurants, and optimize the initiatives we deployed last year. In restaurant visits with franchisees around the country, I'm seeing the results of focused execution against the plan. Importantly, average franchisee restaurant cash flow has grown eight consecutive months through June, fully overcoming the decline we saw in 2018. Across our international operated markets, or IOM, We're seeing continued success. Consistent execution against the Velocity Growth Plan is a winning formula. I had the pleasure to visit IFLI during the quarter and witnessed first hand a rigorous focus on operational innovations and improvements. IFLI now has posted 10 consecutive quarters of comp sales and guest count growth with double digit comp sales and guest count growth for the quarter. In fact, Italy has outperformed the local informal eating out, or IEO, category for nearly two years now. I saw similar energy and focus when I went from Italy to Poland, which also posted strong comp sales and guest count growth for the quarter. This high-performing market was an early adopter of EOTF and digital. In Warsaw, I saw the positive impact our guest experience leaders have on hospitality as they greeted customers with a special warmth that made guests feel welcome. Italy and Poland are great examples of markets where we start the best practice and replicate it at scale across other markets. Whether around EOTF rollout, hospitality, operations or digital, Ideas originate in one market and rapidly move to another, creating an environment where all boats rise. Now let me turn it over to Kevin for a deeper dive into our comp sales trends by market and performance drivers.