Hello, and welcome to McDonald's Third Quarter 2025 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. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call are Chairman and Chief Executive Officer, Chris Kempczinski; and Chief Financial Officer, Ian Borden. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now I'll turn it over to Chris.

Good morning, everyone, and thank you for joining us. In the third quarter, McDonald's delivered global comparable sales growth of more than 3.5%, with growth across all segments. In addition, for the second quarter in a row, McDonald's delivered global system-wide sales growth of more than 6% in constant currency, reflective of the increasing contribution from new unit openings. Our performance is anchored in our Accelerating the Arches business strategy and exceptional execution to provide the value our customers want for the food they love. Our combination of great-tasting menu innovation, exciting marketing, and reliable value and affordability succeeded in a highly challenged consumer environment and drove traffic share gains in a majority of our top markets. In the U.S., we continue to see a bifurcated consumer base with QSR traffic from lower-income consumers declining nearly double digits in the third quarter, a trend that's persisted for nearly 2 years. In contrast, QSR traffic growth among higher-income consumers remained strong, increasing nearly double digits in the quarter. We continue to remain cautious about the health of the consumer in the U.S. and our top international markets and believe the pressures will continue well into 2026. Delivering industry-leading value is part of McDonald's DNA. It's a foundational expectation of our brand to bring consumers through our doors and keep them coming back. And especially in today's difficult macro environment, it's more important than ever. On our last earnings call, I previewed the close collaboration with our U.S. franchisees to improve consumers' value perceptions of our core menu offerings. We heard our customers loud and clear on the need to deliver everyday value and affordability across their favorite items on our menu board. In September, we introduced Extra Value Meals or EVMs with a nationally advertised $5 Sausage McMuffin with Egg meal and an $8 Big Mac meal. And for the month of November, we're back with a $5 Sausage Egg and Cheese McGriddles meal and an $8 10-piece Chicken McNuggets meal. As we've said before, we will measure the success of our EVM program in two ways: first, by gaining share of lower-income consumer traffic and second, by improving value and affordability experience scores. I'm pleased with how our EVM program is performing since relaunch. We're still in the early stages of the program and expect that the associated comp sales lift and traffic improvements will continue to build as awareness of the program increases over the coming quarters. Outside the U.S., our performance has remained strong with our large markets continuing to execute disciplined value, menu, and marketing programs. The value platforms we've had in place for several quarters in our IOM markets are resonating with our customers and continuing to improve value and affordability scores. While these programs are working, we're remaining agile and will evolve them along with the needs of our customers. In Australia, for example, we locked in pricing on our McSmart meal and lose-change venue value offerings for 12 months beginning in July, giving customers confidence and consistency in a volatile economic environment while helping us maintain relevance, drive traffic, and gain share. Time and again, we've proven that when we execute well, we outperform. And that has also been the case in Japan, where we've had market share gains for six quarters amid consistently strong performance. Just a couple of weeks ago, I visited our restaurants in Tokyo and my first-hand experience confirmed the momentum supported by strong local marketing and innovation. This included several exciting Happy Meal campaigns that drove significant traffic and social engagement, highlighting the power of local relevance and the strength of our brand in connecting with consumers. Along with both value and marketing execution, our new category structure is laying the groundwork to deliver more menu innovation to support long-term growth. We've established dedicated teams with deep expertise and focused attention on the high-potential growth categories of chicken, beverages, and beef. At the outset, we promised increased speed of innovation and scale, and we're already introducing new solutions into the system. Let's begin with beverages, a global category of more than $100 billion that's growing much faster than the broader IEO industry. In the U.S., we launched a beverage test in more than 500 restaurants across Colorado and Wisconsin at the beginning of September. The product mix includes cold coffees, fruit and refreshers, crafted sodas, and energy-based drinks. Initial results are exceeding expectations with strong satisfaction scores across the board and the new beverage offerings are driving incremental occasions across different dayparts as well as higher average check. We're excited to see progress continue with the test as we deepen our understanding, drive innovation, and evaluate how these offerings could enhance our long-term beverage strategy in the U.S. and abroad. Turning to chicken, a global category that is twice the size of beef and growing faster, we're making good progress on our chicken offerings and continued to gain share in our top 10 markets in the quarter. In the U.S., we brought back Snack Wraps in early July, much to the delight of our most vocal fans at a nationally advertised price point of $2.99. The strong customer reception to this highly anticipated launch highlights the importance of pairing the right product with the right value proposition. In our IOM markets, innovation standouts like the Chicken Big Mac in the U.K. and McWings in Australia exceeded expectations in the quarter, and we'll continue to pursue the broader chicken opportunity by expanding our portfolio and pulsing in limited-time offers to meet evolving consumer tastes. Investing in these high-growth categories to align with consumer trends reinforces our broader strategy to drive guest count-led growth, win on taste and quality, and outperform competitors over the long-term. With that, I'll turn it over to Ian.

Thanks, Chris, and good morning, everyone. As Chris mentioned, McDonald's continues to deliver solid results by focusing on what we can control: value, menu innovation, and outstanding marketing execution while also driving consistent operational improvements across nearly all of our top markets. In the third quarter, global comparable sales increased 3.6% despite a challenging consumer environment and a difficult QSR industry backdrop. In the U.S., comp sales increased 2.4% for the quarter, and we delivered another quarter of positive comp sales and guest count gaps to our near-end competitors. We started Q3 with the national launch of Snack Wraps, and the initial four-week window exceeded our expectations. Snack Wraps were the most popular new chicken product launch in the U.S. in recent history, with nearly one in five McDonald's customers purchasing a Snack Wrap during that period. Although easing somewhat after the exceptional initial launch period, Snack Wraps continued to deliver strong unit performance throughout the quarter, helping us gain share in the U.S. chicken category and drive high levels of customer satisfaction. We're also continuing to see positive results from the McValue platform as we continue to evolve our value offerings. In mid-July, we introduced the Daily Double, a third meal deal as a companion to the McChicken and the McDouble meal deals. Overall, our McValue platform continues to serve distinct needs with little overlap of customers across the meal deal and Buy One, Add One constructs, both of which continue to drive incrementality to the business in the quarter. And as Chris described in early September, we brought extra value meals back to the menu to ensure fans can find everyday affordable pricing across our menu boards. Getting the EVM formula right is important because they account for about 30% of our total transactions in the U.S. And so far, results have been in line with our expectations as we build consumer awareness and drive behavior changes. While not a benefit to our third-quarter results, in October, we reintroduced MONOPOLY in the U.S. for the first time in nearly a decade, and we're pleased with the performance. This year's campaign includes digital engagement through our app, similar to what we've done successfully in international markets. MONOPOLY is one of the biggest digital customer acquisition events we've ever had, driving downloads and registrations and reinforcing the role of digital in our broader strategy. With about 45 million 90-day active users in the U.S., we're excited about how MONOPOLY is helping more customers discover our strong value offerings available through our app. Turning to our internationally operated market segment, comp sales were up 4.3%, marking consecutive quarters of growth above 4% despite a challenged industry backdrop. Just like last quarter, each IOM market delivered positive comp sales growth, led by strong performances in Germany and Australia. In Germany, we delivered our strongest comp sales results in two years, extending the trend of market share gains to nearly four years. Despite persistent industry traffic declines, McDonald's Germany has consistently outperformed driven by disciplined execution of our value menu and marketing playbook. A standout in the quarter was the Taste of the World campaign, which showcased the global strength of the McDonald's brand by offering customers a curated selection of international menu favorites at their local German McDonald's restaurant. Taste of the World exceeded expectations and was complemented by an optimized mailer and strong local marketing, demonstrating our ability to deliver value and innovation simultaneously. In addition, it provided a campaign blueprint, which we plan to replicate across more international markets in 2026 and which is currently live in the U.K. In Australia, we're encouraged by the momentum that the new management team and our franchisees are building across the entire system as we've gained market share for a second straight quarter by executing a full suite of initiatives across value menu and marketing. And as Chris noted, we locked in value prices for 12 months starting in July, providing consumers with predictability and confidence. The launch of the Big Arch burger and breakfast McGriddles added excitement to the menu, while the return of MONOPOLY now fully digital and available exclusively through the MyMacca's app, drove increased app downloads and registrations and contributed to digital sales growth. In our international developmental license markets, comp sales grew 4.7%, led by Japan, which has delivered consistently positive guest count growth for nearly two years. In China, while near-term performance continues to reflect macroeconomic pressures, we remain confident in the long-term opportunity. We're investing in the future, including adding 1,000 new restaurants this year. We're also updating our Hamburger University in China, which we believe will support talent development and reinforce our commitment to the market. We have the right partner in place and remain confident in our ability to drive sustainable, profitable growth over time. Turning to the P&L, adjusted earnings per share was $3.22 for the quarter, which includes a $0.04 benefit from foreign currency translation. Adjusted earnings per share on a constant currency basis declined 1% versus the prior year, primarily due to the impact of a higher effective tax rate, more than offsetting an increase in adjusted operating income. Total restaurant margin dollars were over $4 billion, a 4% increase in constant currency and the first quarter in our history that we've surpassed the $4 billion mark. This performance is a true reflection of the strength of our business model in a pressured consumer and inflationary environment. G&A increased versus the prior year quarter, reflecting $40 million of incremental marketing spend to support the relaunch of Extra Value Meals in the U.S., higher incentive-based compensation expense, and the timing of investments in our strategic transformation efforts and growth opportunities. Our year-to-date adjusted operating margin is 47.2%, up meaningfully from the 46.7% in the prior year period, reflecting top line growth and strong execution across our system, including portfolio management. Below the operating line, our effective income tax rate for the quarter was 22.8%, we're projecting our full year effective tax rate to be between 21% and 22%, which is tightening the range from our previous estimate. We currently estimate that the impact of foreign currency translation on adjusted earnings per share for the fourth quarter will be about a $0.05 tailwind based on current exchange rates. As always, our estimate is directional guidance only as rates will likely change as the year progresses. We're on track to deliver our financial targets for the year, which include the expected impacts from tariffs currently in place, and remain focused on executing our Accelerating the Arches strategy to create long-term value for our stakeholders. With respect to capital allocation, our priorities remain unchanged. First, we invest in opportunities to grow the business and drive strong returns. Second, we return remaining free cash flow to shareholders over time through dividends and share repurchases. In line with investing in the business, we believe our development pipeline is healthy, and we're on track to deliver our current year targets and our 50,000 restaurants globally by the end of 2027. Whether through new restaurant openings, digital innovation, or menu enhancements, we're continuing to build a business that is positioned to win in any operating environment. With respect to capital returns, in October, we announced a 5% increase in our dividend, which is our 49th consecutive year of dividend increases. That's a testament to the strength, resilience, and long-term value that McDonald's delivers and expects to continue to deliver to our shareholders. Our ability to consistently return capital while investing in the business reflects the durability of our model and the confidence we have in our future. With that, let me turn it back over to Chris.

Thanks, Ian. Each fall, McDonald's celebrates our Founder's Day with reflections on the pride and passion that fuel our system. It's a privilege to recognize the everyday actions of our crew members, franchisees, and teams around the world. This year is particularly special given it's our 70th anniversary. The resilience we've built across generations and geographies reminds us that our strength lies not just in our global scale, but in the local actions we take day in and day out to feed and foster communities everywhere McDonald's operates. Founder's Day is also a time to look ahead to the next chapter of innovation, growth, and impact. From our digital transformation to our commitment to value and affordability, we are building on our legacy in ways that matter most to today's consumer, and we're doing it together as one McDonald's system. As we look to close out the year, our focus remains on executing what we can control. We're committed to delivering for our customers, especially in the challenging environment we navigate today. As is often the case, Ray had great advice for the moment we face today when he said adversity can strengthen you if you have the will to grind it out. That's exactly what we're doing. With that, we'll take your questions.

We are focused on working together as one McDonald's system to meet the needs of today's consumer. As we approach the end of the year, our priority is on executing what we can manage. We are dedicated to serving our customers, especially in this tough environment. As Ray often says, adversity can make you stronger if you have the determination to push through. That is precisely what we are doing. Now, we will take your questions.

Our first question today is from David Palmer from Evercore.

I wanted to ask you about the U.S. business, specifically regarding the dual objectives of enhancing both company restaurant profitability and system restaurant profitability, as well as improving the perceived value compared to your competitors in the U.S. How do you plan to achieve these goals? I see that your average unit volumes are significantly higher than those of your competitors, exceeding $4.5 million for your company restaurants, with a trailing restaurant margin of 11.5%. I believe there is potential for even higher margins and an increased value perception gap compared to your competitors. I suspect you have some strategies in mind to expand that value perception gap while also improving restaurant margins over time. I would love to hear more about that.

Sure. Thanks, David. Well, I think the formula for us is pretty well established over time, which is basically, if you do what you need to do to let your customers and serve them well, you're going to attract more people to the business, and ultimately, that's going to drive unit economics. And so I think for us, the focus is always on getting more people through the door, getting them to buy larger items, and ultimately, that drives AUVs that you were talking about. I don't think that related to that, that it's at all incompatible that improving value scores actually is also part of improving unit economics. And that's very much our focus right now. As we think about the full year, our U.S. franchisees' cash flow is going to be solid. The cash flow performance is going to be solid. At the same time that we're making these investments that we talked about on our last call around EVM. So I think for us, the test of time is just to get more people through the door, get them buying more, and everything seems to take care of itself.

David, I just might add a bit to what Chris said. And obviously, what he said, we've talked about pretty consistently that we've got to get after guest count-led growth. And I think nothing certainly from my lens has changed in terms of over time if we keep driving more volume and more customers through our doors, which is obviously what we're always focused on. Nothing fundamentally has changed, I think, in our belief that we can drive margin accretion over time. I mean, I think obviously, as you know well, a bit of the dynamic right now is inflation levels are still elevated from, I think, kind of what I would say are the historical norms. The pricing environment is challenging. And so I think in the short-term, that continues to put pressure on margins. But again, I think we're focused on what do we need to do to meet the needs of our consumers in the environment, and we certainly believe value and affordability is right. And if we get that right, that will pay off both in the short and long term, as Chris just talked about.

Our next question is from David Tarantino from Baird.

My question is about the value strategy in the U.S. I believe you are providing some support or co-investing in this strategy with your franchisees in the near term. Ian, could you outline what the level of that support looks like overall? Chris, on a related note, franchisees will eventually need to decide whether to continue this approach without your support. How would you describe the thresholds for that decision and how the system is perceiving success from a financial standpoint? Do they need to see traffic growth that offsets the price investments, or are they more focused on the metrics you mentioned, like value scores? Any insights on this would be appreciated.

David, it’s Ian. Let me start, and then Chris will address the second part of your question. From a support perspective, as I mentioned in my opening remarks, Chris and I have discussed our confidence in the value we are offering through the McValue platform and the digital value available to our loyalty program members. When you combine these two initiatives, they account for about 40% of our total sales in the U.S. The purpose of the EVMs, as we mentioned in September, focuses on the remaining 60% of our menu, which we consider the everyday core part that serves our regular customers. We saw an opportunity to enhance the value in that segment, and EVMs constitute about half of that 60%, representing roughly 30% of our overall portfolio in the U.S. Addressing this was critical, which is why we targeted the EVM relaunch in September. To support this, we've allocated $40 million for incremental corporate marketing to aid in the EVM relaunch. As you've likely noted, there will be a re-hit of that in November, funded through our usual advertising co-op contributed by franchisees. Therefore, no additional funding is needed for the November efforts, but we will maintain a co-investment from the September launch through the end of 2025, equal to 50% of the effective menu price reduction. Before we relaunched EVMs, the average discount across our U.S. business was about 11%. With our eight core EVM meals, we are now targeting a minimum discount of 15%, with us co-investing half of that reduction. In September, McDonald's support amounted to around $15 million, although that was for just three weeks of activity, and we anticipate that support in Q4 will be about $75 million. In Q1 2026, we will continue providing support, but it will differ. This support will address approximately 50% of the net negative cash flow impact connected to the EVM reintroduction, net of any increase in EVM sales at individual restaurants. Since this support has a different structure, we expect it to be significantly lower in Q1 than what we’re offering in Q4 this year. By the end of Q1, all corporate support will conclude. Now, I'll turn it over to Chris to address part two.

Sure. Thanks, Ian. So on value, as you know, and as Ian just referenced, we put in place McValue now it's well over a year ago, and we feel very good about our McValue platform. But what we also talked about was that consumers' value perception, the number one driver of consumers' value perception is actually what's going on in the menu board. It's not meal deals or offers; it's what's going on in the menu board. And we, along with our U.S. franchisees, recognize that we had an opportunity there. And that through a number of things that had happened over time, we have gotten out of whack on EVMs, and that was having a drag on our value perception. And so we went to the U.S. franchisees with a path forward on how we're going to fix EVMs. And the good news is the vast majority, and I'm talking like 98%, 99% of our franchisees recognize that we had an issue with EVMs that we needed to address. And so the support that we came in with was designed to give them a pathway on how we can get this corrected but also protect on what was going to be, we knew in the short-term, a drag. I mean that's a challenge when you do some of the pricing actions that we're doing with EVM is in the short-term, it's going to be a drag until you can get the incrementality, and then thereafter, it becomes more sustaining. So that's exactly what we did. And what we expect is going to happen is that by the end of Q1, our system is going to be in a position where it's actually going to be a better decision to continue with the EVMs than it is to go back to where we were and create the problem all over again. So my expectation is that we're going to see the system continue with this EVM program because we've essentially bridged them through the most difficult part of this, and any move backward would actually, I think, be self-defeating.

And maybe just a final hook to that, David. I just would say, again, when we put this in place in September, you heard us say this wasn't a short-term decision. This is going to take at least a couple of quarters, I think, to kind of get the momentum and the lift and the repetitive activity that you need. I would just say we're obviously still early days in, but we're pleased with the progress, and we're on track to what we would have expected at this point a few weeks post-launch in September.

Our next question is from Dennis Geiger at UBS.

Great. Kudos on the solid sales momentum in the U.S. in the quarter in a tough backdrop. I was wondering if you could talk a little more about how you're thinking about the U.S. sales trajectory looking out over the coming quarters, given a bunch of the key sales drivers that you identified? And also kind of curious if you think sort of the underlying guest count baseline trends that you've kind of touched on in the past a bit, if you think that that's improving for the business or sort of if those underlying baseline trends are set to improve in '26 if you feel good about the direction of those baseline trends?

Well, I'm not going to get into trouble with giving any forecasts, so I'm going to let Ian handle that one.

Thanks for the question, Dennis. I want to mention that we’ve experienced two consecutive quarters of solid growth and are building good momentum across our three business segments. As we’ve discussed, we are focusing on aspects we can control in a challenging external environment. We remain cautious about consumer conditions; they continue to be difficult in the U.S. and also in several of our top international markets. We noticed the situation in the U.S. worsened slightly in Q3 and moving into Q4. Despite this, we are confident in our ability to achieve another strong quarter of growth across all segments in Q4. This confidence comes from the belief that we need to succeed in three key areas simultaneously: value, marketing execution, and menu innovation. We feel we are executing better in all these aspects. Specifically for the U.S., we expect our comparable sales growth to accelerate in Q4 compared to the 2.4% growth in Q3, driven by factors such as lapping last year’s food safety incident and the positive start to the quarter with our MONOPOLY promotion running in October. Additionally, with the upcoming re-introduction of our $5 and $8 price points in November, we anticipate notable sales growth. We also expect our two-year stacked comp sales growth to modestly increase from the 2.7% we saw in Q3. For our international segments, we expect operating conditions in Q4 to be similar to the last few quarters. While we anticipate a slight deceleration in comp sales compared to previous quarters, this is mainly due to tougher year-on-year comparisons. Nonetheless, we expect significant acceleration in comp sales growth on a two-year stack basis for both segments in Q4. In summary, external conditions remain tough, but we believe our focus on value, affordability, and effective marketing is driving our positive performance. This is evident in markets like Germany and Australia, where despite challenging external conditions, we have performed strongly.

All I would add to that is it's still a difficult environment and inflation is proving to be sticky. I mean we're expecting to see there's going to be above-average inflation next year. You've heard about others referencing what's going on with beef prices. Certainly, we're seeing very, very high inflation around beef prices versus what we're used to historically. And so I think all of that just keeps putting pressure on the industry. And I referenced it in my opening remarks, but it's very much kind of how we're feeling, which is this is an environment where you've just got to grind it out. I mean that was an expression that Ray Kroc always loved to talk about. And it kind of feels like that's sort of how we're having to operate, which is just grinding out and getting growth. And fortunately, our system is executing well. We've got good alignment with our franchisees, so I think we're going to continue to do well, but I don't want to minimize some of the pressures as well that exist in the industry today and that we're expecting to continue into next year.

Our next question is from Greg Francfort of Guggenheim.

I'm wondering if you can maybe just give some more detail on the beverage tests that you've been running. I think you're running two kind of very different tests in terms of breadth of product and including the energy drink and not including the energy drink and just what that sales mix looks like? And if there's any just consumer behaviors that you can call out?

I'll let Ian start and then I can add. But as we referenced, we're pleased with it. We're not trying to make too much of an inference around what it's going to do from a comp standpoint. It's more about operations, and I think getting a sense of the mix, but I'll let Ian talk about that and then close out anything else.

We are currently testing in a few regions of our U.S. business, involving about 500 restaurants. There is a specific intention behind the different product lineup. While there is some overlap in the product offerings between the regions, there are also distinct differences. As we previously mentioned, the beverage test was developed from insights gained from the CosMc's stand-alone restaurants we launched last year. That test indicated that we could capitalize on the majority of the potential without introducing a level of complexity that would hinder our restaurant operations. The test has a couple of aims: one is to assess consumer demand and feedback on the product lineup, and the other is to test our assumptions regarding the manageable complexity those lineups present. We are managing the complexity in the restaurants as we anticipated. The main goal of any test is to learn and adapt, and we have received a very positive consumer response, confirming that the portfolio aligns with current consumer preferences and expectations for beverages. It is still early in the process, and, as Chris mentioned, we have more work ahead, but we are encouraged by the feedback we have received so far.

The only thing I would add is on this test, one of the things that we're also looking at is we're being very thoughtful and purposeful about where we price these products. And we have a variety of different items, but we think the opportunity for us is to be actually able to bring value into this segment as well. And so with our franchisees, we've been very thoughtful about where these products are priced relative to the competitors that would have similar offerings. And I think what we're seeing here is, for us, should we roll this out nationally, being very disciplined on pricing and making sure that we're delivering value on these beverages versus the competitive set is going to be the way that we're successful in this segment.

Next question is from Sara Senatore from Bank of America.

Great. I have two clarifications. First, regarding the high-income traffic being up double digits, is that an acceleration compared to what you've seen before? I'm trying to determine if there's any indication of a trade down occurring. Secondly, on IDL, I understand there has been strength across all regions, but you mentioned that China is still facing some challenges. Does that imply that the market in China was possibly not positive? I have noticed some signs of improvement reported by other consumer companies, so I want to clarify if China is an exception in that region.

Sara, it's Ian. So let me try and touch on those two things. I think high-income consumer, it's certainly not a change in trend. I mean, we've talked pretty consistently for quite a while now about the bifurcated consumer environment in the U.S. And I would just say that the Q3 data only continued to emphasize and maybe even showed that bifurcation extending because as we said, low-income consumer was down in terms of visits to QSR, high single digit and high-income consumer was up high single digits. So that just, I think, is kind of extenuating that bifurcation. Obviously, the whole point of what we're trying to do with value and affordability is make sure we're meeting the needs of all of our consumers and continuing, obviously, to be well positioned on that. I think on IDL, I mean, again, I think on China, nothing new, I think, from what we've been talking about for several quarters. I mean, I think the macroeconomic environment continues to remain challenging in the short-term. We haven't changed our view on the mid- to long-term opportunity and our confidence level. And I think, as we said in the note, all of the geographic regions in IDL, and I would include China in that were positive, at least from a comp sales standpoint.

Yes. I would like to add that we are pleased with the performance of our business in China. We are continuing to gain market share there. However, there is overcapacity in China, leading to a delivery competition that is affecting pricing. Prices are declining in that market due to the competition among the three major delivery companies. While this situation benefits consumers, it is putting pressure on our business. Nonetheless, as Ian mentioned, we are growing comparable sales and are on track with our plans for new units. Overall, the environment in China is more deflationary than we would ideally prefer.

Our next question is from John Ivankoe at JPMorgan.

I appreciate how you highlighted the value of Australia in providing consumers in that market with predictability and confidence. I want to relate that to the U.S. By broadening the typical EVM discount from 11% to 15%, are we giving consumers price certainty across that EVM platform? Since it's 30% of your sales, this is crucial for local, regional, or national customers who expect to know they can get a Big Mac combo meal at a specific price. Do you believe that achieving price certainty in the U.S. over time can help us establish that predictability and confidence, potentially allowing the brand to transition towards a more sustainable national pricing model on the EVM side, with some exceptions?

I think you're exactly right. Part of why we wanted to address the discount on the EVMs is because through a lot of our work over history, I think we've certainly conditioned the consumer to expect that there's going to be a certain amount of value that you get when you go and you buy an EVM item. And as we've talked about before, we had drifted a little bit away from that. And so the move that we did is very much meant to re-establish. And then to the earlier question around whether we expect it to continue, we would expect it does need to continue because it's what the consumer expects. And I think once we've kind of gotten through sort of the medicine they have to take for a couple of quarters to get the incrementality, once you've got that back in place, you don't want to lose it. So I think this was very much meant as an idea to give us that predictable value. And then you're going to have the McValue platform that will pulse in and out with various deals and offers, and that's going to just sort of be something that goes and evolves over time. But the EVM is that foundation, along with being disciplined, not just your regular menu boards.

Our next question is from Brian Bittner of Oppenheimer.

Chris, you said in your prepared remarks that while you're taking share in the U.S., the low-end consumer cohort does continue to be down double digits. It's a theme that's been in place for almost two years now. And you said you expect this dynamic to linger into 2026. And the question is, at this point, what do you think it's going to take to turn this lowering consumer from a headwind to a tailwind? It seems like that's the main unlock for comps to really inflect. You've thrown a lot of industry-leading value at this low-end consumer, yet they remain pressured, so just additional thoughts on what you think it's going to take into 2026.

Sure. If you consider the low-income consumer and the pressures they face, rents are currently high across the country, food prices in restaurants and grocery stores are elevated, and child care costs are also high. There are many factors contributing to significant inflation in non-discretionary spending that low-income consumers have to deal with. This is affecting their outlook, sentiment, and spending behavior, not only in quick-service restaurants but across various product categories. For those in higher income brackets, the impact may not be as pronounced, but low-income individuals are certainly feeling it deeply. Recent developments with Snap and similar issues may add further pressure. To see a change, consumers need to feel some relief in the cost of living and have the perception that real incomes are increasing. The question of how this will evolve is more of a macroeconomic issue that involves multiple factors. However, as long as this consumer group feels that their real incomes are under pressure, I wouldn't expect to see significant changes.

Our next question is from Brian Harbour at Morgan Stanley.

I guess to that point, though, are you seeing yourselves take share across different income cohorts? I mean, do you think that the value push has sort of worked and then I guess more at the higher end, do you think some of the digital initiatives, some of the other product stuff that you've done, have you seen that be effective across different income cohorts?

Sure. Well, we're gaining share with upper income, and as we referenced, upper income industry traffic is up almost double digits there. And even in that environment, we're gaining share with upper income. And I think there's a variety of things that go into that digital, our marketing programs, the strength of the brand, all of those things are attractive to that consumer. So I think that, that's very much continuing. And then how we think about that over time, value certainly has a play. I think sometimes there's this idea that value only matters to low income. But value matters to everybody, whether you're upper income, middle income, lower income, feeling like you're getting good value for your dollar is important. And so I think for us, continuing to do what we're doing with EVMs, continuing to make sure that our McValue platform is competitive. Those are things that benefit not just the low-income consumer, but they also continue to attract that upper-income consumer who is still looking for good value; they just may have more discretionary dollars in their pocket that they can go spend.

Our next question is from Lauren Silberman at Deutsche Bank.

I have a quick follow-up and then a question. On the high-income side, fast casual has been a weaker segment this year, tends to lean a bit more higher income. Is there any evidence of share shift from fast casual into QSR from that higher-income consumer? And then if you could just talk about what you're seeing across dayparts. I know you guys have talked about breakfast being weaker. Have you seen any pickup with the everyday value meals?

Well, Lauren, it's Ian. Let me start by discussing the higher-income consumer, and then I'll let Chris cover the second part. We've been talking about the divided consumer in the U.S. for some time, particularly highlighting the strength of the higher-income consumer. I don't believe there has been any fundamental change in trends with that consumer. While others have noted some weakness, we continue to gain market share among that demographic. Our aim is to ensure we're strongly positioned on value and affordability for all consumer groups. We've made significant progress with our McValue platform and our loyalty and digital offerings. However, we realized we were lacking the value strength on our core menu, particularly in the 60% EVM segment, which is something we are addressing now. Our unique advantage is that we have the financial capacity to make these types of investments while others may need to take a more defensive approach. I believe we're making the right moves for the consumer. Both Chris and I feel that there won’t be any near-term changes in the environment, so we want to ensure we are well-positioned to perform as best as we can in an externally challenging landscape.

In response to your question about breakfast, we have mentioned previously that breakfast is often the most sensitive meal period in terms of economic factors. It is easy for consumers to either skip breakfast or choose to eat it at home. Industry-wide, breakfast is still facing challenges. While we are maintaining our market share in this segment, we continue to experience pressure for the reasons we've previously discussed. Any improvement in this area will likely align with broader macroeconomic changes that we have talked about.

Our next question is from Jeff Bernstein over at Barclays.

Great. Just thinking about that value push maybe from a 30,000-foot view, I know 12 months ago with signs of a U.S. economic slowdown, we assumed fast food broadly and McDonald's specifically would benefit on both ends of the consumer spectrum, retaining the low income with value and perhaps seeing trade down from middle and upper income. Obviously, that didn't transpire much of this year. But it seems like it's set up well as we look to '26. Wondering if you believe it's reasonable to assume that we could see this play out, especially as you now have a more compelling value offer to bring back the lower income, and you're lapping that weakness now. And on the other hand, again, signs of middle and upper income perhaps being a little bit more vulnerable and trading down. So perhaps on a one-year lag, but do you see that scenario playing out where you could actually benefit from both ends kind of converging back on the quick-service segment.

I'd love for that scenario to happen. I'm not going to predict if it will. What we've stated and I want to emphasize again is that value is in our DNA at McDonald's. We are fully committed to protecting our leadership position in value. We've already taken steps where we saw opportunities in that area. We are not going to falter as a brand when it comes to value. The scenario you described is one possibility, and it would be fantastic if it unfolded that way. However, if there are any opportunities for us, it won’t be because we failed to focus on value. We’ve learned from our past experiences, and we are determined to be well-prepared for 2026 in that regard.

Our next question is from Andy Barish over at Jefferies.

Yes. I actually wanted to kind of dovetail on that question. And I was intrigued by your comments, Chris, on the inflationary environment, which may continue to bring about difficulties in margins. How do you see that kind of playing through to the industry promotional environment in '26, which has kind of been relentless for the last 18 months or so.

I believe it will continue to be a challenging situation as companies try to find a balance between raising prices to counteract ongoing inflation and addressing the resistance from consumers, especially those with lower incomes, to any additional costs. It's crucial to identify the right combination that allows for price adjustments while still delivering a strong value proposition. Finding the solution is not straightforward, and it seems that everyone in the industry is grappling with this issue. The last thing anyone wants is to lose foot traffic due to a lack of appeal. Different companies are likely to adopt various strategies, and we've noticed an increase in digital offers, though a significant portion of our customers doesn't engage with the digital platform, which limits that approach. Each competitor will have their own methods, and we have our strategy for tackling this situation. I anticipate that compelling value offers will remain essential as everyone works to navigate the impact of inflation on pricing.

And the only thing, Andy, maybe I would just add to what Chris said, and we touched on it on an earlier question is I do think consumers are looking for a little bit of predictability. And so I think there will be the tactical price wars or digital offers or kind of short-term efforts by people to kind of win in a difficult environment. If you believe the environment is going to continue to remain challenging for a while, which I think certainly as good as our crystal ball is, we would say that certainly seems to be what's on up over the next at least several quarters. I think the predictability is really important, which gets back to certainly, our view, which is why platforms like McValue and having predictable components to that, the EVM, which is a, again, a more predictable outcome for consumers is really important because I think the certainty and the predictability, I think nothing frustrates consumers more right now when they come in and they don't get what they expect. So as Chris said, we're going to make sure we're positioned to win across all the spectrums of value and try and make sure we do that in a way that has a level of consistency and predictability for our consumers.

Our next question is from Jon Tower at Citi.

Great, Chris, you had mentioned in the prepared remarks the idea that you're thinking about expanding the beverage platform, the CosMc's stuff globally or beyond the U.S. And I know in the U.S. you had also commented on the idea of keeping that kind of value-centric price point here in the states. So how are you thinking about expanding it globally? Obviously, still in test now, but I think outside the U.S., the platform is positioned differently to consumers across different markets. Are you continuing to think about that in the same manner if you were to roll CosMc's globally, or do you think you'll kind of use it as a value platform across the globe?

So we will be testing what we've got in the U.S. You're going to see that in some international markets where it will get tested. It may look a little bit different from what we're doing in the U.S., but we'll test that and see how that resonates in a few other markets. And let me just be clear, beverage is an exciting incremental opportunity for us that we like because of its ability to drive incremental traffic. It's check add-on. It's got a lot of benefits. And to do that, it needs to be also I think priced at a competitive value for us to win. We're not seeing it though as a value platform per se. And so when we talk about what it's going to be in the U.S., it's very much designed to drive margin. It's very much designed to drive check. But how we do that is also being mindful about where it's priced vis-a-vis the competitive set. Well, I think, take that same approach as we test it in some of the international markets, and whether that rolls out beyond the U.S. or not will obviously be dependent on how it performs in some of those other markets.

Our last question today is from Andrew Charles from TD Cowen.

Ian, can you talk more about the U.S. McOpCo margin contraction in 3Q and help unpack as a bigger headwind this quarter was general inflation for customers seeking lower margin value? And also, if you can just touch on your outlook for beef within that response as well.

Sure, Andrew. I think it's clear that the key driver of margin growth is strong top-line growth. We need a certain minimum level of top-line growth to enhance margins. While we had a decent quarter in the U.S. at 2.4%, it wasn't sufficient to counterbalance some of the inflationary pressures we experienced, particularly in wages, food, and paper costs. As both Chris and I have mentioned, we maintain our belief that we can achieve margin growth over time with increased top-line growth. However, we are still functioning in an environment where sales have been somewhat subdued, and inflation rates are higher than historical averages. Regarding food and paper in the U.S., we anticipate our inflation in those areas to be in the low to mid-single-digit range for the year. Beef inflation is notably higher, but the strength of our supply chain has resulted in our beef costs increasing less than many others, though they remain elevated. This gives us confidence in maintaining our low to mid-single-digit inflation expectations. Our focus remains on ensuring we have baseline momentum, with value and affordability being crucial across all menu items. We are working towards strengthening that top-line growth as we move forward, and as mentioned earlier, we have seen a satisfactory start to Q4, addressing some components like our EVM relaunch.

That concludes the call today. Thanks for joining us. If you have any follow-up questions or would like to have a meeting, please send me an email, and we'll do so. Thanks again, and have a good day.

This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.