Q3 2024 McDonalds Corp Earnings Call

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Speaker Change: Hello and welcome to McDonald's 3rd quarter 2024 Investor Conference call. At the request of McDonald's Corporation, this conference is being recorded.

Speaker Change: 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 one on their touch-tone phone.

Speaker Change: I would now like to turn the conference over to Mr Scott Meeter, interim treasurer for McDonald's Corporation. Mr Meeter, you may begin.

Scott Meeter: Good morning everyone and thank you for joining us. With me on the call today, our Chairman and Chief Executive Officer Chris Kempczinski and Chief Financial Officer Ian Borden. As a reminder, the forward-looking statements in our earnings release in 8K filing also apply to our comments on the call today.

Scott Meeter: Both of those documents are available on our website as our reconciliation of any non-gap financial measures mentioned on today's call, along with their corresponding gap measures.

Scott Meeter: Following Prepare remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions.

Scott Meeter: Today's conference calls being webcast and is also being recorded for replay via our website. And now I'll turn it over to Chris.

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.

Chris Kempczinski: Before I do that, I want to address the recent E.C.O.L.I. cases related to slivered onions in a handful of U.S. states.

Chris Kempczinski: 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.

Chris Kempczinski: For over 70 years, McDonald's commitment to food safety has been uncompromising.

Chris Kempczinski: Nothing is more important to us than the safety of our customers. And we've been proud of our industry leadership in this area.

Chris Kempczinski: The last serious public health issue in the U.S. associated with McDonald's occurred more than 40 years ago. The recent spade of E. coli cases is deeply concerning and hearing reports of how this is impacted our customers has been wrenching for us.

Chris Kempczinski: On behalf of the entire system, we are sorry for what our customers have experienced.

Chris Kempczinski: We offer our sincere and deepest sympathies and we are committed to making this right.

Chris Kempczinski: When of our core values, it's to do the right thing, and that has been and will be our guide as we address the situation.

Chris Kempczinski: 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.

Chris Kempczinski: We understand from health authorities that delivered onions from Taylor Farms, Colorado Springs facility are the likely source of contamination.

Chris Kempczinski: McDonald's has stopped sourcing onions from this facility indefinitely.

Chris Kempczinski: Importantly, the Colorado Department of Agriculture confirmed on Sunday that they did not detect E. coli in the samples of beef pies from our restaurants and have no further plans to test.

Chris Kempczinski: This supports our investigation that ruled out quarter-pounder patties as the source.

Chris Kempczinski: 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 impact of areas, and we expect all restaurants and U.S. to resume the sale of quarter-pounders in the coming week.

Chris Kempczinski: We are proud of our franchisees on wavering commitment to food safety and for executing our stringent food safety procedures.

Chris Kempczinski: Doing the right thing also means communicating openly and transparently.

Chris Kempczinski: 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.

Chris Kempczinski: As I said at the outset, serving customer safely is our top priority.

Chris Kempczinski: will never compromise on that.

Chris Kempczinski: When I 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 up McDonald's

Chris Kempczinski: Let's turn now to the update on our performance in Q3.

Chris Kempczinski: On our last call we've shared the QSR sector had meaningfully slowed in many of our markets with industry traffic declined in several major markets.

Chris Kempczinski: and that consumers, especially those in the low-end come category, were choosing to eat at home more often.

Chris Kempczinski: This trend continues in the third quarter. QSR traffic has remained pressure reflecting industry-wide challenges.

Chris Kempczinski: and while we anticipated challenging environment in 2024, our performance so far this year has fallen short of our expectations.

Chris Kempczinski: While the QSR industry has slowed, we recognize that there are still many factors within our control to impact performance, guided by our accelerated New York's strategy.

Chris Kempczinski: 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.

Chris Kempczinski: Manu innovation was excited our customers with great tasting food and strong marketing prowess that drove engagement on higher margin core items.

Chris Kempczinski: We have spoken before about our customers recognizing us as the value leader versus our key competitors.

Chris Kempczinski: but our value leadership gap has shrunk. In response, we have moved with urgency in partnership with our franchises to improve our value offerings in most of our major markets.

Chris Kempczinski: Some examples that have launched in the quarter are the four-year-old happy meals in France, three for three pound in the UK, and an in Canada, we're providing valued our customers through price-pointed coffee starting at just $1.

Chris Kempczinski: and to provide our customers with simple everyday affordability they can count on. We're employing strategies that are designed to work together to generate sustainable guest-town lead growth and increase market share.

Chris Kempczinski: As we have said before, we view good value as including both entry-level items and meal bundles at affordable price points.

Chris Kempczinski: This means offering everyday affordable price menus or eat-up in our markets.

Chris Kempczinski: At McDonald's, we define E-Dap as a platform with an assortment of items all priced at compelling entry-level price points, generally including breakfast, beef and chicken sandwich options.

Chris Kempczinski: We will pair E-Depplatforms with strong meal bundles to provide our customers with entry-level meals at affordable price points.

Chris Kempczinski: Blending E-Dap and Mielbundels under a branded value platform allows us to invest in and build recognition and affinity with our customers.

Chris Kempczinski: 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.

Chris Kempczinski: Value and affordability were remain at the forefront of our conversations with markets around the world as we continue to monitor the environment and listen to our customers.

Chris Kempczinski: We spoke last quarter about our belief that delivering value in affordability and markets will have a positive halo effect on the business.

Chris Kempczinski: 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 offering striving traffic and our full margin promotions growing average check.

Chris Kempczinski: Recently, we launched the Collector's Edition campaign, which brought back some of our most love keep-sakes with a twist, giving fans a memory that they can hold in their hands.

Chris Kempczinski: Running in over 30 markets, the campaign featured core equities across all day parts and drove high check full margin traffic into our restaurants.

Chris Kempczinski: Collector's edition captured our fans attention while keeping operation simple and giving customers more reason to purchase core menu items.

Chris Kempczinski: The Campaign Drill of Customers to our restaurant, especially in the US, where the promotion ran alongside the $5 meal deal.

Chris Kempczinski: 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.

Chris Kempczinski: Similarly, do you can't I market leaned into a one McDonald's way for creative excellence by tapping into a winning formula starting in our U.S. market.

Chris Kempczinski: The UK's near sellout of the Grimmyshake 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.

Chris Kempczinski: Australia also followed suit by bringing Grimmis down under at the beginning of October with both the World Famous Grimishake and the Grimmis meal.

Chris Kempczinski: 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.

Speaker Change: You've spoken at Lang for guarding the potential of chicken.

Speaker Change: is the massive category worldwide that's twice the size of beef and growing much faster.

Speaker Change: There is significant room for us to grow our share and we're working to meet the moment and take advantage of its growth.

Speaker Change: We have continued to see strong progress this quarter with the majority of our largest markets growing share.

Speaker Change: The U.S. took an exciting step to evolve their menu offering to the beginning of the month with a limited time full margin offering that is proven successful across several Mark and the prior years. The chicken big Mac.

Speaker Change: and our plan to scale the McCrisspeak with a cross nearly all our markets by the end of 2025 is on track. With the McCrisspeak Chicken sandwich that is expected to be available in over 70 markets by the end of 2024.

Speaker Change: Chicken isn't the only focus in our menu innovation efforts.

Speaker Change: 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.

Speaker Change: We're encouraged by the results showing the Big Arch has universal appeal with sizable opportunity across markets.

Speaker Change: and thanks to the success of the pilot, we're accelerating plans and we'll work with franchise e's and partners to deploy the Big Arch faster and to more international markets in 2025.

Speaker Change: Finally, as we consider our four deeds, after a successful pilot of ready-on arrival or our way in the US, we are working with the rest of our top six markets to deploy this technology by the end of 2025.

Speaker Change: We know from the U.S. that R-A-A helps not only with smoother restaurant execution as crew can better sequence in the kitchen, but also drives higher customer satisfaction scores by reducing weight times.

Speaker Change: 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, told nearly $8 billion globally, with R-AIM to reach $250 million active users by the end of $2027 well within our reach.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: We know we have more work to do to sustain guest-count-led growth and continued market care gains, but I am very confident in our growth strategy and our ability to deliver outstanding execution for our customers.

Speaker Change: Now I'll turn it over to Ian.

Ian Borden: Thanks Chris and good morning everyone.

Ian Borden: We acknowledge that our performance so far this year has fallen short of expectations, with negative global compounds for the quarter amid a challenging industry environment.

Ian Borden: However, US Comp Sales were positive for the third quarter, which was driven by taken action on what we can control, providing compelling value, generating menu excitement and using the full power of our marketing.

Ian Borden: As a result, the U.S. Ope performed the QSR industry comp sales and comp guest counts for the quarter. In fact, this quarter's comp guest count gap to most near-in competitors was the highest since the first quarter of 2023.

Ian Borden: 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.

Ian Borden: Consistent with what Joe said last quarter, we wanted to see three things from the $5 meal deal.

Ian Borden: First, improve brand perceptions around value and affordability.

Ian Borden: 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.

Ian Borden: 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.

Ian Borden: We saw increased traction, particularly with low-income consumers, successfully growing traffic share with this group for the first time in over a year.

Ian Borden: 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.

Ian Borden: 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 history in the US.

Ian Borden: We have plans to introduce the more holistic US value platform in quarter one next year.

Ian Borden: Well, value has been at the forefront of conversations. We have remained laser focused on running great restaurants.

Ian Borden: We ignited our restaurant cruise competitive spirit in the U.S. by running competitions aimed to increase gas counts, improve the speed of service, and refine our digital execution.

Ian Borden: and it worked. The US customer satisfaction scores reached an all-time high and service times that the drive-through have dropped by double digits compared to last year.

Ian Borden: This focus on operational excellence was also true internationally, where across all big 5-IOM markets, we increased customer satisfaction scores compared to last year.

Ian Borden: 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 intangible that create great value, knowing that providing a great experience, particularly now, is fundamental.

Ian Borden: Turning to our international business, our internationally operated market comp sales were negative for the quarter. Reflective of the contracting QSR industry, or customers continue to be more intentional with the dollars they spend, mostly driven by France and the UK.

Ian Borden: 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 mixed-mark menu.

Ian Borden: We also know that we have an opportunity with families and the four-year-old happy meal which commenced in late August is providing an uplift to that category.

Ian Borden: 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.

Ian Borden: 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.

Ian Borden: We are beginning to see progress.

Ian Borden: For example, in the UK and Germany, we have growth traffic share in environments that have further deteriorated since Q2.

Ian Borden: The UK drove excitement amongst customers by providing compelling value propositions.

Ian Borden: across all occasions with the return of the three for three-pound menu by providing a two-pound 79-pens breakfast bundle and by capitalizing on consumer excitement through the launch of the Grimmyshake discussed earlier.

Ian Borden: and being further inspired by the success scene in the U.S. the UK recently launched a five-pound meal bundle to further strengthen value positioning.

Ian Borden: 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.

Ian Borden: and building upon McSmart's success.

Ian Borden: Germany enhanced his platform with the launch of an expanded, mixed-marked 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.

Ian Borden: 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.

Ian Borden: As we have stated before, as long as the war in the Middle East continues, we expect our business to continue to be impacted.

Ian Borden: Turning to the P&L, adjusted Erlinger's per share was $3.23 for the quarter, an increase compared to the prior year of about 1% in constant currencies.

Ian Borden: 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 percent highlights the durability of our business model.

Ian Borden: Results for the quarter reflected lower G&A spent, primarily due to lower incentive base costs and continued prioritization around current year run the business spent.

Ian Borden: We continue to invest in our strategic transformation efforts, focused on forward-looking investments that will drive long-term growth and efficiency.

Ian Borden: has expected results also reflected higher interest expense.

Ian Borden: and we now expect the company's interest expense to increase by approximately 11% for the full year.

Ian Borden: and our adjusted effective tax rate for the quarter was about 21%.

Ian Borden: with respect to the remainder of the year.

Ian Borden: We are reaffirming the other aspects of our financial outlook for 2024. Under the assumption that the public health situation that Chris spoke to up front will not have a material impact to our business.

Ian Borden: And finally, in September, our Board of Directors approved a 6% dividend increase to the equivalent of $7.8 per share annually.

Ian Borden: This marked the 48th consecutive dividend increase. Reinforcing our continued confidence in the accelerating the arches gross strategy and our ability to continue to drive long-term profitable growth for all stakeholders.

Ian Borden: We remain consistent in our commitment to our capital allocation priorities. First,

Ian Borden: 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.

Speaker Change: and with that, let me turn it back over to Chris.

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.

Chris Kempczinski: will still using our influence to help have a positive impact on the communities in which we operate.

Chris Kempczinski: Giving back has been a celebrated part of McDonald's culture since the beginning.

Chris Kempczinski: In the wake of hurricanes, Halene, and Milton, it has been incredibly challenging across the southeast US.

Chris Kempczinski: As a system, we will be contributing more than $2 million in direct and incandade, which includes crew relief efforts and serving roughly 50,000 free hot meals to our most impacted communities across North Carolina, Georgia and Florida.

Chris Kempczinski: Thank you to our franchisee suppliers and everyone across the entire system for doing all they can to help those impacted in those areas.

Chris Kempczinski: Furthermore, I'm extremely proud of the work. The McDonald's system it does on a daily basis to prioritize driving change toward a more sustainable and inclusive future.

Chris Kempczinski: 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.

Chris Kempczinski: and we raised $53 million in 2023 through our roundup for the Ronald McDonald House Charities Program.

Chris Kempczinski: In fact, this year we are celebrating the curious 50th anniversary.

Chris Kempczinski: by the rich 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.

Chris Kempczinski: 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.

Chris Kempczinski: When our system works together to put our customers and communities first, there are few things we can to achieve.

Chris Kempczinski: McDonald's is not a stranger to adversity, but we have always risen to the challenge and come out stronger as a business.

Chris Kempczinski: Well, 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 collectors edition, we do succeed even in tough environments.

Chris Kempczinski: 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.

Chris Kempczinski: and with that we can transition to Q&A.

Speaker Change: 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 re-cue for any additional questions.

Speaker Change: Our first question is from David Palmer with Evercore.

Speaker Change: Uh...

David Palmer: Thanks and good morning.

David Palmer: It should probably be said that you would have done a great job in those four months leading up to this food safety issue.

David Palmer: and really stabilizing traffic with the 4-5. A lot of the might have seemed unlikely back in May or June.

David Palmer: and it seemed like you were really re-inflating 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?

David Palmer: The consumer move on from a marketing stance and maybe a plan going forward. Now you're not going to want to public call, 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?

David Palmer: Improve the trajectory in sales and help the consumer move on after these food safety headlines.

Chris Kempczinski: Hi David, it's Chris, thanks for the question and...

Chris Kempczinski: Let me just say again that we are.

Chris Kempczinski: Certainly, very sorry if someone got sick at our restaurant for eating an onion that we use on our QPC. And I am relieved that I think we are now passes and on the road to getting back to serving our customers.

Chris Kempczinski: as we are used to doing. I think you raised the important point, which is how do we make sure that we are

Chris Kempczinski: We're 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

Chris Kempczinski: and I think as you've seen...

Chris Kempczinski: We have tried to be very transparent on this issue.

Chris Kempczinski: We work very collaboratively with...

Chris Kempczinski: The health authorities and we took very swift and decisive actions. I think the first thing is just...

Chris Kempczinski: How we've handled the issue now that we're moving and we view it as being behind us.

Chris Kempczinski: You're bringing up the second point which is how do we get the momentum back into business that we clearly saw leading up to this very unfortunate event.

Chris Kempczinski: and I think there's a variety of things here, I think certainly.

Chris Kempczinski: We're seeing success with the $5 meal deal. We're going to have food innovation.

Chris Kempczinski: as well in Q4. We're going to continue to be driving digital.

Chris Kempczinski: and I think we stand ready to do more if we need to.

Chris Kempczinski: to make sure that we are bringing the full resources of McDonald's to be able 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 U.S.

Chris Kempczinski: 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, I had needed with additional activity to make sure that, you know, we get that customer back as a restaurants.

Chris Kempczinski: i

Speaker Change: Our next question is from John Ivinkov with JP Morgan

Speaker Change: Hi, you know the question is on value and I want to position it in a way that you know in certain your cases McDonald's has talked about

Speaker Change: and a kind of one global solution to certain platforms. I think about the Macrispy, which is a global product. Value was something that was expressed within countries and even within a country.

Speaker Change: in a lot of cases actually dependent on the app to communicate value on a personalized level to customers. Now, you know, tell me from wrong, I'm going to do sense of shifts, you know, that value will be communicated more on a global basis.

Speaker Change: with items under 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 two years ago. So I guess just relative to your expectations.

Speaker Change: What really did change from a value perspective that we're kind of thinking about more global solutions at this point. And you can be 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.

Speaker Change: Hi John, it's Chris. Thanks for the question. It gives me an opportunity to just clarify. I can tell you absolutely categorically positively.

Speaker Change: Value was done at the market level. We do not.

Speaker Change: comes up with global value solutions that then get topped out to the market. 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.

Speaker Change: So this has been and will continue to be something that is driven at the market level. I think maybe what you're seeing.

Speaker Change: is we are getting better at sharing.

Speaker Change: Brainworks and strategies that are working.

Speaker Change: When we find something that's working in one market

Speaker Change: Certainly it would be remiss if we'd share that learning and opportunity with other markets to pick up on. So that's where you've seen things like mixed-mort 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 like look at it is.

Speaker Change: We have a global framework on how we think about value and there's a number of different ways to deliver value

Speaker Change: We talked about you need to have a strong E-DF 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 U that you're seeing currently in the U.S.

Speaker Change: and then you can overlay on top of that.

Speaker Change: in app offers promotions, other things like that.

Speaker Change: So that would sort of be the general framework of how...

Speaker Change: We think about value and what we've learned through all of our experience on what works but how that gets applied is very much left at the market level.

Speaker Change: I may be just a billed John to Chris's points, which I think just because you talked about digital, I mean, digital certainly continues to grow and importance, but it's still a minority of our customers and obviously over the mid to long term.

Speaker Change: Digital will become a much bigger part and then will obviously bring value to life at an individual level with a lot of data and insights which allow us to really effectively.

Speaker Change: Target value that's most relevant for that individual consumer.

Speaker Change: 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.

Speaker Change: 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.

Dennis Geiger: You know, not expecting you 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.

Ian Borden: Okay, I'm warning, Dennis, it's Ian, let me deal with that one and I think it's...

Ian Borden: It's a good question and obviously one that I think is important to answer is to 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

Ian Borden: specifically what you asked, I mean I think.

Ian Borden: Our US business has done a really nice job of kind of responding to the heightened expectations from customers around value and ability with the $5 meal.

Ian Borden: and then has Chris talked about really combining that with great

Ian Borden: Marketing executions through things like the collectors 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

Ian Borden: equal to 3 outcome, which is more customers visiting and more of those customers spending more of those visits driving check and obviously profitability.

Ian Borden: We talked about in the opening remarks that the US has significantly outperformed the USR industry with Com.

Ian Borden: Guess count and traffic gaps at their highest points in the beginning of 23.

Ian Borden: And then we also talked about that five-dollar meal doing exactly what we had kind of set out to have it achieved. Two of those things that I think are really important is...

Ian Borden: For the first time in over a year, we gain 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...

Ian Borden: to GF Count led growth. I think certainly those things were starting to come to life.

Ian Borden: We ended the third quarter on an upward trajectory in the US business. Then obviously we started our chicken big Mac, LTO on the tenth of October. And I would say if you looked at just the first three weeks of October in the US business.

Ian Borden: We had comp sales of close to...

Ian Borden: Mid-Single Digit, Positive and Comt guest counts positive just a little bit below that. So a really strong start.

Ian Borden: to a really strong finish to the end of the third quarter, really strong start to the fourth quarter. When you consider that we were still operating in a very entalancing broader industry context. I mean, I think of course, as you would expect.

Ian Borden: 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.

Ian Borden: Since the beginning of the food safety incident, I think Chris talked about. Our focus has been on obviously moving swiftly and decisively, working closely with all the relevant health authorities.

Ian Borden: 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 get quarter pounders back.

Ian Borden: 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

Ian Borden: Consumer Confidence, getting our U.S. business back to that strong momentum that I just talked about. I think we're really confident in our ability to do that.

Speaker Change: Our next question is from David Tarantino with Barrett.

David Tarantino: Hi, I'm good morning, just maybe to follow on the last comments and maybe Chris and Kempczinski.

David Tarantino: You know, with respect to the advertising message that you're thinking about over the next, you know, three to six months a lot of it's been focused on value and you've had.

David Tarantino: You know, 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

David Tarantino: 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.

Speaker Change: We're going to do what we need to do to get the growth back into the business and certainly if there's

Speaker Change: An aspect of that which is around reassuring the public.

Speaker Change: We're prepared to do that. I think I don't view it as an award. I view it as an an and I think we can do both. I think we can

Speaker Change: Make sure that we're communicating the steps that we've taken and if there is lingering on these out there to be able to address that at the same time.

Speaker Change: I think we can also continue to be driving value and I think we can be driving.

Speaker Change: Marketing news and so...

Speaker Change: One of the things about McDonald's is we have, I think, ample resources.

Speaker Change: 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...

Speaker Change: We're going to do what we need to do to make sure we've got to get the momentum back in the business.

Speaker Change: Our next question is from Brian Harver with Morgan Stanley.

Brian Harver: Thank you for your time. Ian, I appreciate the comments on the US recently.

Brian Harver: to some of the other pieces in forke you and I know you're kind of sticking to the overall annual guidance for the most part. You know, should we infer though that there is your things kind of some traction in?

Brian Harver: I am an ideal and you think that there can be some sales momentum there as we go into the fourth quarter Do you think that Estee and A are still kind of similarly favorable as we saw in PreQ and just any other kind of key moving parts as we think about the last quarter or the year?

Speaker Change: Yeah, thanks Brian.

Speaker Change: So I think a couple things, I mean, I think on in the IOM markets, as you heard us talk about in...

Speaker Change: are upfront remarks. I mean the industry environment remains challenging. There's no doubt about that. I mean I think...

Speaker Change: Consumers are under pressure.

Speaker Change: The industry is contracting in a number of our largest IOM markets and in fact that contraction worsened.

Speaker Change: 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.

Speaker Change: 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 a more acute kind of pressures. I think I'm disposable income obviously too really important.

Speaker Change: Parts of our consumer base. I think for all of those reasons it's why obviously we have such a heightened focus.

Speaker Change: on Value and Affordability and making sure we get that right for the context we're in.

Speaker Change: and each and every one of our markets. I think the US results are really strong data point that when we get that right, get that value in affordability proposition right, we're going to win.

Speaker Change: In the environment we're in and we're going to obviously win better. I think that anyone else is doing and we know we can continue to drive.

Speaker Change: Better momentum even in those more difficult contexts. I think we're certainly seeing what all call some early signs of progress.

Speaker Change: in several of our international markets where we are seeing that our guest count, or Comptraphic Gap versus our nearing competitive set is positive. But we want to get that in place in every one of our...

Speaker Change: 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...

Speaker Change: is 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.

Speaker Change: In 25, Ian Regardless of the context around us and we're going to obviously continue to measure our performance through, are we taking share? Ian Regardless of that environment.

Speaker Change: 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.

Speaker Change: To do everything possible and as you saw we expect to be able to continue to deliver against our guidance this year.

Speaker Change: We're doing that obviously because we've got some relief on kind of the incentive base part of GNA

Speaker Change: 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.

Speaker Change: The strategic growth opportunities 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.

Speaker Change: I will just add.

Speaker Change: and the other one.

Speaker Change: and maybe reiterate what he said. We are seeing a tough industry. UK, France, Germany, Australia, those are all.

Speaker Change: Markets, where the industry traffic is down.

Speaker Change: That said, we are either gaining care 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...

Speaker Change: with the pace. 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.

Speaker Change: and I think we have an opportunity to overlay on top of that some stronger marketing efforts as well.

Speaker Change: Seeing progress, but I'm not fully satisfied with the pace on the 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.

Speaker Change: Our next question is from Sarah Settator with Bank of America.

Sarah Settator: Oh, thank you. A clarification and a question please. The clarification is just, you know, you talked about the average check at $10 for the checks that I've got $5 a meal. I think so that might be lower than what you're overall your aggregate, your average averages, if you will.

Speaker Change: So as you think of as you launch this kind of holistic value platform, should I be thinking about perhaps the negative mix headwind for the baby to year ahead just as sort of a reset in order and pattern? With the recognition that your traffic gains are certainly the, you know, should be an other priority.

Speaker Change: So that's the clarification and then...

Speaker Change: Just a question on, you know, we look like Macaupeco margins were bit lower than we expected, maybe because of value, but maybe because of due average, is there anything in the margin dynamics or sales trends?

Speaker Change: that your franchise user seeing that would change how they think about adding new units. As you look to Accelerator Eunkwang.

Speaker Change: Morning Sarah, let me start on that and I'll let Chris weigh in if he wants to add anything. I think on the five dollar meal, as you picked up a check, north of $10, that is slightly below our overall average check in the U.S. But we consider that to be a really strong...

Sarah Settator: Jack, when you look at, obviously the $5 price point.

Sarah Settator: 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 strong or value and affordability is drive more traffic and more gas counts and as we bring more traffic and gas counts into the restaurants we're pairing that with things like the collectors' editions.

Sarah Settator: or the chicken Big Mac, LTO. That's where we're going to get that check.

Sarah Settator: 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...

Sarah Settator: Really good that if 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 we'll drive obviously the check and profitability as we saw.

Sarah Settator: 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 Macapco margin. You're right. They did come in Obviously it did come in on a percentage basis a little lower

Sarah Settator: 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.

Sarah Settator: wage increases, so you've got that pressure. You've still got commodity pressure even though this year we expect

Sarah Settator: And then I think for sure, there's a little bit of an impact.

Sarah Settator: From I think the affordability

Sarah Settator: 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.

Sarah Settator: 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.

Sarah Settator: It's certainly something that we pay very close attention to, but right now, from our vantage point...

Speaker Change: Thank you.

Speaker Change: 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.

Speaker Change: Our next question is from Eric Gonzalez with KeyBank.

Eric Gonzalez: Hey, thanks for the question. Just as a follow-up to that, with regards to the $5 meal, you know, in the last earnings call, it seemed like the traffic lift was more than offset by the lower mix as the consumers traded 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 cuts and more recently the chicken and big Mac. So, if you can comment on that and discuss how that experience is shaping the discussion with your franchisees around more permanent value contracts. And I think you said it's lazy for the first quarter.

Eric Gonzalez: Sure.

Eric Gonzalez: As we talked about

Speaker Change: to get that good balance of traffic and sales growth in the business. You need, at the foundation...

Speaker Change: have a strong value proposition, and that's been the focus for us in a number of our markets.

Speaker Change: either strengthening, adding to, adjusting our value programs so that we have that good foundation.

Speaker Change: 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...

Speaker Change: 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 and check getting added on top of that. So that's the focus for us in all the various markets

Speaker Change: 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 Artillery in the Arches strategy, when we do that well, the business responds.

Speaker Change: The big arch that we've had in three pilot international markets for the last several months where we're seeing, you know, really

Speaker Change: strong results. So again, I think there's there's certainly

Speaker Change: 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.

Speaker Change: 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

Speaker Change: 1 plus 1 kind of equals to 3 overall outcome. 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.

Speaker Change: I think the question was does a product like that resonate and what we've seen in our three markets so far is

Speaker Change: It's doing great, and that's why we've decided we're going to accelerate it into more markets.

Speaker Change: next year. So I think there's

Speaker Change: but they're also using it, it's clearly meeting an unmet need and when we have good marketing behind it that could be a nice add-on and complement to to the overall ticket. So those are that to me is just a great example of

Speaker Change: 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 bill that we've been talking about.

Speaker Change: Our next question is from Lauren Silberman with Deutsche Bank.

Lauren Silberman: Thank you. Just a quick follow-up on the sales impact with 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 U.S. comp, can you 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.

Speaker Change: Hi, good morning, Lauren. Well, I think, as you would expect, for sure there is a bit more impact in the concentrated areas where the news and attention has been a little bit more.

Speaker Change: 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, I think the most significant events are behind us now, and we certainly are fully focused on

Speaker Change: Getting the U.S. 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 the focus.

Speaker Change: 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...

Speaker Change: You know a fair bit about that already.

Speaker Change: Thank you very much.

Speaker Change: Our next call is from Jeff Bernstein with Barclays.

Jeff Bernstein: Great, thank you very much. Just following up on the U.S. value component, 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.

Speaker Change: for any detail on that share growth. I think he said it's the first time in over a year you've seen share growth with that low-income consumer, so any support around that?

Speaker Change: and just to clarify, I think he said, read a more holistic value platform in the first quarter of 25. [inaudible]

Speaker Change: It 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.

Speaker Change: 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 when we launch the five dollar meal

Speaker Change: 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.

Speaker Change: 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...

Speaker Change: 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

Speaker Change: what our longer term value program needs to look like. We're not gonna 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.

Speaker Change: But, I think you can, you can, uh...

Speaker Change: anticipate it's going to have a few components. It needs to have this EDAP component that we've talked about.

Speaker Change: 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.

Speaker Change: and it needs to be able to incorporate some of the digital offers that we do.

Speaker Change: 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 services.

Speaker Change: individual value components and I think that's what you should expect to see from us launching in Q1 of next year.

Speaker Change: lower-income consumers and that goes back I think to what we've talked about a couple of times today

Speaker Change: exciting menu news and marketing execution. So we feel the U.S. did a really nice job during the quarter of resonating broadly with consumers, the specific data points.

Speaker Change: 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 basis for the first time in over a year, so I think that's a very specific

Speaker Change: an 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.

Speaker Change: 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.

Speaker Change: We have time for one more question with John Tower from Citi.

John Tower: Great. Thanks for taking the question. I guess maybe just following up on Sarah's question earlier regarding store margins, I was hopeful that you could maybe provide some color on your thoughts in the 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 are you thinking about the brand's pricing power, more so in the U.S. relative to other markets in the world,

John Tower: 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 gonna have to kind of track below?

Speaker Change: Great. Thanks, John. 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 U.S. business through the third quarter, and at least to start,

Speaker Change: to drive margin leverage, because at the end of the day, if we've got greater volume, that's what allows us to, you know, obviously drive margins over time. So I would say.

Speaker Change: In terms of pricing power, I mean, you've heard us talk a lot about, you know, the more challenging environment, particularly in our international markets. I mean, consumers are certainly remaining resistant.

Speaker Change: to pricing, but there are obviously different ways to kind of get at pricing. There's obviously taking price increases.

Speaker Change: 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

Speaker Change: 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 that opens up more opportunity as we look forward.

Speaker Change: Okay, that concludes our call. Thank you, Chris. Thank you, Ian. Thanks, everyone, for joining. Have a great day.