McDonald's Corporation

Hello, and welcome to McDonald's Third Quarter 2024 Investor Conference Call. At the request of McDonald 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. Scott Meter, Interim Treasurer for McDonald Corporation. Mr. Meter, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer Chris Kamczynski and Chief Financial Officer Ian Gordon. 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.

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 the 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 U.S. associated with McDonald's occurred more than 40 years ago. The recent spate of E. coli cases is deeply concerning, and hearing 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 Farm supplier. We swiftly removed them from our supply chain. We understand from health authorities that slivered onions from Taylor Farm's 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 pounder 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 U.S. 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 U.S. 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 declines 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 pressure, 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 QOSR 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 U.S., which included strong, compelling 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 Euro Happy Meals in France, 3 for 3 pound in the UK, and in Canada we're providing value to our customers through price-pointed coffee starting at just $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 everyday affordable price menus, or EDAP, in our markets. At McDonald's, we define Eat Up 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 Eat Up 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 Savor 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 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 day parts and drove high check, full margin traffic into our restaurants. Collectors 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 U.S., where the promotion ran alongside the $5 meal deal. Collectors 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 U.K. and I market leaned into a one McDonald's way for creative excellence by tapping into a winning formula starting in our U.S. market. The U.K.' '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 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 U.S. 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 the 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 tastes 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 we'll work with franchisees and partners to deploy the Big Arch faster and to more international markets in 2025. Finally, as we consider our 4Ds, after a successful pilot of Ready on Arrival, or ROA, in the U.S., We are working with the rest of our top six markets to deploy this technology by the end of 2025. We know from the U.S. 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 a multi-channel 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.