Hello, and welcome to McDonald's First Quarter 2024 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. 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.

Good morning, everyone, and thank you for joining us. With me on the call today are President 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. 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, Mike, and good morning, everyone. I join you today inspired from our recent worldwide convention, a time when McDonald's comes together to celebrate the success of our system, the relevance of our brand, and the power of our Accelerating the Arches strategy. The collective strength of our system was on full display as we welcomed our global McDonald's franchisees, restaurant teams, suppliers, and employees to Barcelona. For the first time in our nearly 70-year history, we held this biennial reunion outside of North America, a testament to the global power of our brand. We were joined by more than 15,000 attendees from nearly 100 markets to discuss how we are reimagining the future across our three-legged stool. It's clear that McDonald's continues to operate from a position of strength across nearly all areas of the business as we focus on executing the day-to-day at a high level and establishing strong platforms for long-term sustained growth. The first quarter of 2024 marks our 13th consecutive quarter of positive comparable sales growth with 30% growth over the last four years. This success was built by establishing a strong foundation with our strategic plan based on consumer insights and creating relevant marketing campaigns with our brand connected to culture. At the same time, we're maximizing the strength of our core menu equities and building an industry-leading loyalty base. Combined with our modernized restaurant estate, strong franchisee alignment, engaged restaurant employees, and strong restaurant-level unit economics, McDonald's is well positioned. This winning formula continues to drive results and our customers visiting our restaurants today can easily see our commitment to providing them with a great experience, evident through our strong customer satisfaction scores. As I reflect on the first quarter of the year, it is clear that broad-based consumer pressures persist around the world. Consumers continue to be highly selective with every dollar they spend as they face elevated prices in their daily spending, putting pressure on the QSR industry. It's worth noting that, in Q1, industry traffic was flat to declining in the U.S., Australia, Canada, Germany, Japan, and the U.K. Across almost all major markets, industry traffic is slowing. In the context of a difficult macro environment for the industry, we know our customers are looking for reliable everyday value now more than ever. That has always been our promise: to deliver delicious feel-good moments at an affordable price each and every day. Staying on the consumer side and executing against our plan is our model for driving long-term growth regardless of the broader landscape. This was the case nearly 70 years ago when Ray Kroc opened the first McDonald's, and this remains just as true today. As consumer pressures have mounted, we've reacted with agility to proactively meet evolving customer needs. For example, over the past year, we've launched everyday value menus across many of our international markets, including all five of our big IOM markets, featuring value bundles at various price points, providing smaller, more affordable meals to our customers. In Germany, our McSmart menu has continued its strong performance with record units sold during the first quarter. In other markets like Spain, our everyday value menu features a convenient bundle for every price point, which continues to drive results. I recently spent time with our market team in Poland and saw their renewed focus on value in a challenging consumer environment with significant inflation. I was impressed by the market's ability to quickly identify an opportunity in their everyday value offerings, implementing a new entry-level value platform that is driving traffic back into our restaurants. In France, a market I flagged last quarter, I've been impressed by how quickly our team and franchisees moved to address their opportunities. The market now has established their own McSmart value menu with high consumer awareness, driving encouraging progress in their business trends. It's clear that McDonald's offers delicious food at great value, and customers continue to tell us this through our survey work. That said, we must be laser-focused on affordability, which means ensuring good entry-level price points are available every day. In the markets where we're doing this well, the business is outperforming. In some markets, however, it is clear we still have opportunities to strengthen our proposition. As we continue to take a One McDonald's approach to solving problems, the unique size and scale of the McDonald's system gives us the ability to learn from each other. Examples like our success with the McSmart value menu construct will be replicated further. McDonald's has a long history of being the go-to destination for value, and it's imperative we continue to keep affordability at the forefront for our customers. We literally wrote the playbook on value, and we are committed to upholding our leadership within the industry. Our teams in those markets are working closely with our local franchisees to balance menu pricing decisions with the right affordability strategy and, where needed, become more aggressive with our value offerings. Despite the elevated cost environment we've navigated over the past couple of years, average franchising cash flow and the corresponding margins remain strong. Thanks to the financial strength of our restaurant P&Ls, we have the ability to invest in these traffic-driving initiatives. Despite these ongoing challenges and pressured consumer spending across our segments, we delivered global comparable sales growth of nearly 2% in the first quarter. We continue to raise the bar on the customer experience in our restaurants with a focus on strong execution. This is driving improved service times and higher levels of customer satisfaction across our markets. In challenging times, there is significant power in focusing on what's within our control to maximize the impact of our strategic plan: offering our customers delicious food at unparalleled value and convenience. This approach will continue to drive growth. McDonald's is best positioned to win in the industry; when we combine our strong system alignment with our fully modernized estate, a globally recognized brand, delicious food on our core menu, and the highest level of execution across our four dimensions, no competitor could match us. As consumer spending remains pressured and macro headwinds continue, we are laser-focused on maintaining our competitive advantages and growing QSR market share. With that, I'll turn it over to Ian to talk more about our Q1 results.

Thanks, and good morning, everyone. As Chris mentioned just a few minutes ago, strong execution against our strategic plan delivered global comparable sales of nearly 2% for the first quarter, driven by growth across our U.S. and IOM segments. As we've said before, as customers continue to be more intentional with the dollars they spend in a pressured economic landscape, we expect moderated top line growth this year. In our IDL segment, positive comparable sales in Japan, Europe, and Latin America were offset by the impact of the ongoing war in the Middle East. We remain proud of how our system continues to show up for customers every day, and we continue to work closely with our partners in the region to support local communities. It's during times like this that I'm reminded of the resilience of the entire McDonald's system and our ability to deliver delicious, feel-good moments to our customers in any environment, which I've seen time and again in my 30 years with McDonald's. We continue to drive a One McDonald's Way approach to our creative excellence this quarter, combining local cultural relevance with global reach to engage a new generation of McDonald's fans. In more than 30 markets around the world, including the U.S., we tapped into a new global community with a truly unique brand campaign. While McDonald's has long been an enduring brand across communities, in anime, we're known as WcDonald's—a fictional restaurant we brought to life for our fans this quarter. By featuring our Chicken McNuggets alongside a new dipping sauce, themed packaging, and bonus gaming content with a mobile app purchase, we created brand excitement and lifted McNugget category sales. Our fans' passion for the McDonald's brand and WcDonald's universe quickly spread across social media in the U.S. with over 6 billion impressions and nearly 100,000 mentions. Our delicious burgers were featured across many markets this quarter, showcasing our strength in beef with a consistent approach to improving fan favorites. Now deployed in over 80% of our restaurants globally, Best Burger was recently introduced in France this quarter, delivering hotter and juicier burgers. Early results were promising, with lifts across our core burger categories and improved customer satisfaction in both our taste and quality scores. In the U.S., where we're now fully deployed across the country, we celebrated the national launch of Best Burger with an iconic character at the center of our advertising. Tapping into the nostalgia of the Hamburglar, the campaign drove a significant lift in the Big Mac category and contributed to record customer satisfaction scores in the market. The progress we've made with our core burgers highlights what McDonald's can achieve when we tap into the full power of our system, size, and scale. We will continue to showcase that small changes can deliver big improvements to both taste and quality by scaling Best Burger to nearly all restaurants by the end of 2026. As we enhance our leadership in beef, our team of chefs from around the world has created a larger satiating burger. We'll be testing this burger in a few markets later this year, ensuring that it has universal appeal before scaling it globally. We also celebrated our menu in the mobile app this quarter, combining the strength of our core equities with new and exciting digital experiences for our customers. Across our top markets, digital penetration is growing, evidenced by our increased loyalty sales and record mobile app orders, leading to greater frequency and increased spend by loyalty customers. We're also growing digital share as we leverage learnings from across markets in areas like gamification. Australia featured McDonald's World Famous Fries at the center of a digital campaign and offered customers a chance to win by digitally redeeming their game pieces. Powered by a seamless digital experience, the campaign resulted in incremental customer acquisition and increased the market's loyalty sales. The U.K. market also drove strong loyalty results with the return of their Winning Sips digital experience, encouraging customers to add a drink to their order with a chance to win on every cup. Customer engagement in the mobile app increased with digitally redeemed game pieces, leading to record growth in 90-day active users in the market. Unique digital experiences like Winning Sips keep our loyalty members engaged more frequently, with nearly 75% of our total loyalty user base in the U.K. active during the last quarter. We know the experience we provide—whether through our mobile app or in our restaurants—is a significant driver of how often our customers choose to visit McDonald's. Providing our delicious food at the right price is equally critical, especially in today's environment, where consumers globally are paying more for everyday goods and services. As Chris mentioned a few minutes ago, a strong value proposition continued to drive results within several of our markets this quarter. This consumer-centric approach to providing our customers with compelling value at affordable price points led to strong results in markets like Germany, Spain, and Poland and resulted in QSR market share gains. As we remain agile to meet the needs of our customers around the world, we will continue to use our size and scale for the greatest impact, sharing what is working to drive consistency and enable speed. Turning to the P&L, our global top line growth drove adjusted earnings per share of $2.70 for the quarter, an increase over the prior year of about 2% in constant currencies. Adjusted operating margin for the quarter was nearly 45%. Despite the pressured consumer spending environment we've discussed this morning, top line results generated nearly $3.5 billion of restaurant margin for the quarter, an increase of about 4% in constant currency. This was partially offset by higher general and administrative costs as we continue to invest in our strategic transformation efforts and growth opportunities such as digital, and costs associated with our biennial Worldwide Convention that Chris mentioned. Our adjusted effective tax rate was 19.9% for the quarter. Driving long-term growth requires making the right strategic and forward-looking investments. The resilience of our business and our overall financial strength put us in the ideal position to invest in critical areas that deliver against customer needs as well as unlock efficiencies for our people and our business. This includes new restaurant development as we look to accelerate the pace of openings and grow our footprint to 50,000 restaurants by the end of 2027. Development for the year is off to a strong start across markets, including in China, where we recently opened our 6,000th restaurant, and we are pacing on track against our global plan. In addition to restaurant development, we're investing for long-term growth in areas like digital and technology as well as our transformation efforts within our Global Business Services organization. By leveraging the full strength of our global scale, we will build new and modern capabilities and ultimately unlock speed and innovation for our entire McDonald's system. Despite the persistent headwinds, we remain well positioned with the unique strength and scale that only the McDonald's system can provide. As Chris talked about upfront, we are focused on how we can further leverage this across our consumer, restaurant, and company platforms. With our system aligned on the right strategies moving forward, along with the financial strength of our franchisees, suppliers, and the company, I remain confident that we will continue to deliver long-term growth for our system and for our shareholders. And with that, let me turn it back over to Chris.

Thanks, Ian. We like to say that when culture calls, McDonald's answers. With a brand that is renowned throughout the world and marketing that resonates with consumers, it's not surprising that we've been recognized yet again as one of the World's Most Effective Marketers by Work in association with Cannes Lions. We're elevating our creative excellence, scaling great ideas globally, and building meaningful relationships with the next generation of consumers. Breakthrough campaigns, a great-tasting menu, and personalized experiences will drive customers to McDonald's again and again as they come through the physical doors of our restaurants and the digital door of our mobile app. In this environment with pressured QSR traffic, we have an opportunity to get the customers who already visit to visit more often. As more customers make purchase decisions based on personalized recommendations on their devices, driving frequency means using our digital capabilities, like loyalty, to know and serve our customers better than anyone else. With insights powered by our loyalty members, we will work to deliver the right message at the right time to the right consumer, encouraging those who already love McDonald's to visit even more. When we shift marketing investments from traditional mass media like television, print, and billboards to a collective investment in modern and digital capabilities to personalize experiences, we drive profitability. Successfully delivering personalized experiences depends on transforming our restaurants to deliver what customers want: hot, fresh orders delivered with convenience and accuracy. The future restaurant experience is already underway in markets across the world, whether it's Ready on Arrival, a dedicated drive-thru lane for digital orders in China, or other flexible format concepts. By building the technology infrastructure to support the three long-term platforms we've discussed, we will create a more reliable experience and operate more efficiently. We've talked about the ways top-tier marketing and our iconic menu fuel the brand, but there's another component. Each and every day, our McDonald's system strives to fulfill our purpose of feeding and fostering communities locally. There's no greater example of our decades-long dedication to driving positive impact than our work with Ronald McDonald House Charities. This year, we're celebrating the 50th anniversary of Ronald McDonald House Charities, providing essential services that remove barriers to health care, strengthen families, and promote healing when children need it most. Since that first house opening, the charity's global footprint has expanded significantly, helping tens of millions of families through difficult times. With more than 385 programs running across the world, the organization is supporting families across 90% of the world's leading pediatric hospitals, providing over 2 million overnight family stays each year. Before I close, I'd like to recognize Rick Hernandez for his many contributions to the McDonald's system throughout his 28 years of service on our Board of Directors. As I assume the additional role of Chairman following our Annual Shareholders Meeting next month, I look forward to working alongside our new Lead Independent Director, Miles White, and the rest of the Board to continue delivering strong performance united under an aligned company voice. I'm confident that the system is focused on the right priorities with Accelerating the Arches as our playbook, evolving to meet customer needs and laying the foundation for future growth. With that, we'll take questions.

I look forward to working alongside our new Lead Independent Director, Miles White, and the rest of the Board to continue delivering strong performance under an aligned company voice. I'm confident that the system is focused on the right priorities with Accelerating the Arches as our playbook, evolving to meet customer needs and laying the foundation for future growth. With that, we'll take questions.

Our first question is from David Tarantino with Baird.

My question is on the comps outlook. I think, Ian, you mentioned on the last call that you had expected comps in the U.S. and IOM to settle in the 3% to 4% range this year. And now I think your commentary suggests you're operating in a tougher climate than when you gave that guidance. So one, I wanted to ask if that range is still in play in both of those markets in your view? And then secondly, for the U.S. specifically, do you think a more concerted or aggressive value approach is needed to get there in the current environment?

Thanks for the question. Let me start, and then I think Chris will probably jump in to build on whatever I say. What I'd start with is, as you know well, we don't typically provide comp guidance. I think what we were trying to do as we looked back was to provide a directional perspective on what we felt the historical range looked like in more typical years. As you know, we talked about '24 being a year where we felt top line growth was going to moderate. Four months into the year, it’s clear 2024 isn’t going to be a typical year for the broader industry. I say that because we're certainly seeing, as you heard in our comments, that the macro headwinds have been more significant than anticipated coming into the year and the macro headwinds continue into the beginning of quarter 2. In the U.S., I think we expect to start the quarter flat from a comp sales perspective from what we see. So, we believe we will likely be below the historical range we indicated. What we control is always listening to consumers' needs, making appropriate adjustments, and ensuring we can do it better than anyone else. Affordability is clearly an area where expectations from consumers are heightened, as they're experiencing significant inflation impacting all goods and services.

Turning to value in the U.S., it's important to recognize that there is great value our system and franchisees are offering. Ninety percent of our system in the U.S. is providing meal bundles for $4 or less. Looking at digital value, we have great digital offers available. I just opened my app and saw we are currently offering a Big Mac for $0.29 when you buy one, or 30% off McCrispy. However, the challenge we have in the U.S. is that in an environment where everyone is promoting a value message, there's an opportunity for us to improve awareness of our value platform. Currently, we're doing this in many local ways, but what we don’t have is a national value platform while our competitors are leveraging theirs. The opportunity in the U.S. is to get more aligned around a strong national value proposition that we can then market extensively to drive consumer awareness.

Our next question is from Brian Harbour with Morgan Stanley.

Given your response to the prior question, what is the timing on that value plan, especially in the U.S.? Do you think we’ll see improvement in the second quarter, or do you think it takes longer than that? What else could we consider from a sales-driving perspective or maybe from a product perspective that will noticeably affect U.S. comp drivers this year?

If I look at France, they had considerable success with a national value program that was heavily supported with marketing, leading to more than 80% awareness rapidly, driving positive business trends. The key is not just about how quickly you can see the business impact, but how quickly your system can pivot to get that in place. I know the U.S. team is focused on that; they are having conversations with U.S. franchisees. We have great local value available; we just need to unify around a strong national platform to compete, and how quickly this can occur depends on discussions in the market.

I would add that our U.S. leadership team is closely collaborating with our owner/operators. We have a strong understanding of what we need to do and will move as quickly as we can together with them to address that opportunity. We’ve seen success with this approach globally, as Chris noted.

Our next question is from Dennis Geiger with UBS.

Could you speak to what you see with the U.S. consumer, whether it’s by income cohort or spending pattern? Beyond affordability and alignment on a national value plan, what are some other key levers that could support U.S. sales growth in the current environment?

The consumer is being extremely selective with spending. While this is most pronounced with lower-income consumers, it's important to note that all income cohorts seek value. Our approach is to ensure strong value for all customers, which will benefit not just low-income but also middle and upper-income consumers. Operationally, we’re seeing improvements in speed of service, reduced turnover, and increasing customer satisfaction scores in the U.S. We will also innovate our menu throughout the year to engage customers, and we are continuously working on exceptional marketing plans since great marketing can drive business even with our core menu.

Building on Chris' insights, our business foundation is strong. We enter this challenging macro environment in an advantageous position with our fully modernized estate, best-in-class marketing, and the financial strength to pursue opportunities together because of our prior work. We lead in delivery, drive-thru, and digital, and our investments are driving growth in these areas. Overall, we feel positive about our business's vast majority despite current consumer search for more value and affordability.

Our next question is from John Ivankoe with JPMorgan.

What kind of opportunity or need do we have to address core menu pricing in the U.S.? Specifically, I'm referring to things like Quarter Pounder combo pricing or Big Mac combo pricing, which can differ across the restaurant base, even within a given market. The press mentions high pricing in certain stores as the direction of pricing for McDonald's across the country.

If you look at margins in the U.S. today, restaurant-level margins for franchisees have been rebuilt to pre-2019 levels. The prices taken over several years were to offset high labor and commodity inflation. From our current standpoint, we’re in decent shape overall regarding menu pricing. While some sensationalize certain locations, our opportunity lies in effectively communicating our entry-level affordable price points that will be attractive to consumers.

To add on that, good pricing looks like having entry-level items at affordable price points, compelling meal bundles for consumers, and focusing on breakfast value, especially since breakfast is vital for the U.S. business. We must ensure we have the right products at the right prices while maintaining high consumer awareness of our value offerings, influencing their visits as we move forward.

Our next question is from David Palmer with Evercore.

You've noted that customer satisfaction scores are increasing, which is not surprising given the improvements to the restaurants, digital, and core food renovations. What surprises me is that the gap to the industry in the U.S. has eroded. Can you share insights on why the gap has narrowed regarding certain consumer trends or specific dayparts?

We're observing improvement across all major markets regarding overall satisfaction, with multiple contributing factors. We've seen our relative superiority regarding affordability decrease in some markets. This might impact overall satisfaction as the gap has narrowed in specific areas, emphasizing the need for focus on value.

Just to build on that, we're driving better execution speed across our top markets. We know initiatives like Ready on Arrival in the U.S. improve quality and overall experience. We must focus on affordability to keep up with consumer needs, but we feel positive about almost all other aspects of our delivery.

Our next question is from Eric Gonzalez with KeyBanc.

On the pricing aspect, can you discuss the current level of year-over-year pricing and inflation expectations for food and labor this year? Have you noticed any changes in the flow-through of that pricing or elasticity changes?

Most pricing in the U.S. now is carryover pricing rather than new pricing. Labor inflation remains high, particularly due to California impacts, with national expectations around high single-digit labor inflation. For food and paper, expectations have returned to much more historical levels. We see both labor and food inflation impacting the beginning of 2024 but continuing to be prudent about any further price increases, considering that consumer wariness regarding prices.

To reiterate, food and paper inflation is expected at low single digits. We have seen favorable movement while still accounting for the significant carryover effects from 2023 inflation, especially in the first half of 2024. Importantly, we understand the consumer is price-conscious, and we aim to be thoughtful about further price increases while focusing on affordability.

Our next question is from Sara Senatore with Bank of America.

You mentioned that the QSR industry traffic is flat to declining. Given that you typically think of this as an industry where traffic is at best flat, is this indicative of an inflection point? Or have the traffic trends been more consistent?

In the U.S. for Q1, industry comparable traffic was negative, and we expect it to remain negative for the whole year, highlighting the more challenging macro environment.

Regarding franchisees and supporting them, it’s true that our U.S. franchisees are in a strong position. Franchisee cash flow is at historically high levels, second only to the 2021 peak. Our franchisees carry low-interest debt due to past modernization efforts, giving us the chance to strategize around value while keeping their profitability in mind. The opportunity lies in rallying around a national value proposition that drives awareness using our considerable marketing resources.

Our next question is from Lauren Silberman with Deutsche Bank.

Following up on the value question, can you talk about what a national value platform could look like given the different cost environment across the U.S.? What are you seeing in terms of what type of value consumers are most looking for?

Ian outlined a successful playbook that includes good entry-level price points and compelling meal deals. We also need breakfast value as it's significant to our U.S. business. In various markets, we’ve successfully implemented this strategy. Given the competitors' diverse cost structures, we need to reflect that across our own menu and have a history of working with franchisees to create proactive offers to drive transactions.

Our next question is from Brian Bittner with Oppenheimer.

Regarding the operating margin guidance, with a quarter in the books, can you provide tighter expectations given the moving pieces in your financial model? Is last year's 47% a good base case for operating margins this year?

It's true that we have many variables affecting our performance in '24. The macro context influences our predictions regarding the duration and depth of any headwinds, impacting our operating margin leverage, which will depend on sales growth strength. However, I remain confident in our ability to drive operating margin leverage as we address affordability needs, helping to achieve strong top-line growth.

Our next question is from Andrew Charles with Cowen.

Chris, what makes this national value platform different from years past, particularly compared to the $1 $2 $3 launched in 2018? It seemed unsuccessful despite demonstrating a positive value proposition. What will lead to a more favorable outcome this time?

It's on our U.S. team to define the national value proposition. The $1 $2 $3 program took time to gain traction but ultimately drove strong results. The speed at which awareness is created with consumers is critical for driving positive business transactions. So, defining a compelling platform and supporting it adequately is key to making it effective this time.

Our next question is from Greg Francfort with Guggenheim.

Can you comment on the International business, especially in relation to business weakening into the second quarter? What actions are you considering from a support perspective?

Regarding the impact of boycotts in a few markets, we’re not observing any significant worsening; in fact, it might be slightly improving. Notably, in many of these markets, our delivery business remains strong. Significant improvement is expected only when the ongoing conflicts are resolved.

The macro headwinds that affect our larger international markets have continued into quarter 2. For supporting the IDL, we provide targeted and temporary support where necessary. We've offered some support for markets impacted by regional issues. We're continually assessing the situation and working closely with partners.

Our next question is from Brian Mullan with Piper Sandler.

Could you discuss early learnings from your tests of CosMc's in Illinois and Texas? What will guide your decision about expanding these stores next year?

There's not much to report. Interest in CosMc's has been primarily curiosity-driven, so it’s challenging to determine the actual performance expectations. For ultimate success, CosMc's must drive comparable or better returns than traditional McDonald's. We’ll assess this based on volume growth, margin performance, and building costs. We plan to open 10 restaurants to evaluate all these factors.

We have time for one more question from Jeff Bernstein with Barclays.

In terms of U.S. comps, I understand the challenges lower-income households face and some trading down patterns. Historically, quick-service restaurants have seen benefits from trading down. With the sentiment from the biennial speaking to franchisee sentiment, especially with the recent easing, how does the buy-in align with these challenges?

It’s challenging to compare current data with past economic slowdowns, but we often see the dynamic you described. Our business tends to over-index with lower-income consumers, and it is critical that we respond to the price discrimination by all consumers. Franchisee engagement is achieved through conversations around national programs, which we have been doing for decades. We know how to get alignment through discussion.

Our leadership teams are focusing on adopting a street-fighting mentality in challenging times. The macro environment is more demanding, and everyone is vying for fewer consumer visits. Yet, our system is well-positioned with strength and capability, making us committed to delivering the most compelling value and affordability offering.

That concludes our call today. Thank you, Chris. Thanks, Ian. Thank you, everyone, for joining. Have a great day.

This concludes McDonald's Corporation Investor Conference Call. You may now disconnect.