McDonald’s Corporation (NYSE:MCD) Q3 2023 Earnings Call Transcript

McDonald’s Corporation (NYSE:MCD) Q3 2023 Earnings Call Transcript October 30, 2023

McDonald’s Corporation beats earnings expectations. Reported EPS is $3.19, expectations were $2.99.

Operator: Hello, and welcome to McDonald’s Third Quarter 2023 Investor Conference Call. At the request of McDonald’s Corporation, this conference is being recorded. [Operator Instructions] 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.

Mike Cieplak: 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. [Operator Instructions] Just one other piece of housekeeping today before I turn it over to Chris. As many of you are aware, we’ll host an investor update on our McDonald’s headquarters on Wednesday, December 6, where Chris and Ian will be joined by members of our senior leadership team to provide an update on our strategic priorities followed by a Q&A session.

I ask that you please be mindful of this with your questions on the call today and focus questions on our quarterly results in the current year. We’ll spend more time on 2024 and our strategic priorities in December with plenty of time for Q&A on that day. Details for the event and how to tune in can be found on the Investor Events section of our website. 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.

Chris Kempczinski: Thanks, Mike, and good morning. Over the past quarter, we’ve seen yet again the broad-based momentum across the McDonald’s business despite continued headwinds and a challenging macro environment. Around the world, we’re operating from a position of strength as the industry’s market share leader. In Q3, we achieved comparable global sales of nearly 9%. As we expected and as we mentioned in prior earnings calls, our top line growth, while strong across each of our segments and at an elevated level versus historical norms, has continued to moderate. However, we continue to outpace our competitors, thanks to our system’s outstanding execution of our Accelerating the Arches strategy. Over the past year, we’ve been more intentional about sharing and scaling world-class ideas that drive impact globally.

Central to our continued strength is how we maximize our marketing to stay relevant to customers. In August, we launched As Featured In, in over 100 markets, making it our largest global campaign to date. The campaign celebrates the most memorable McDonald’s references across the world of entertainment with over 20 McDonald’s integrations that span across Hollywood, Bollywood, anime and independent film. It’s also another proof point of the impact and power that a One McDonald’s Way approach to marketing can have to drive engagement, allowing our markets to remain globally consistent but locally relevant. Celebrating our core equities, As Featured In demonstrates that McDonald’s and our iconic menu is a cultural touchstone that immediately connects fans to characters and stories with over 85% positive consumer sentiment and in the top 30% of campaigns for customer engagement.

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Q&A Session

As I recently visited Australia and New Zealand, I was energized to see other examples of One McDonald’s Way in action or One Macca’s Way as our friends down under call it. It was clear that our continued menu discipline and reduced restaurant complexity across these markets is driving operational improvements. By creating a One Macca’s Way approach to the crew experience by utilizing consistent comprehensive resources, we’re creating a better customer experience as a result. Speaking of One McDonald’s Way, Australia was our first market to launch Best Burger and with resounding success. Great-tasting burger perceptions continue to grow, and the Macca’s team has reached an all-time high in beef burger share. And now Best Burger has been scaled to over 70 markets around the world, building on learnings from the original launch in Australia.

Australia is also a good example of a market that has room to grow through new restaurant openings. We expand our footprint in the market from a position of strength. We’re also enhancing existing restaurant capacity by introducing delivery rooms and integrated McCafe beverage cells that will allow us to better drive growth against our MCDs. We’ll share more details on our plans related to the Fourth D development in December at our investor update. McDonald’s reliability value and feel good experiences continue to play a key role in connecting to our customers, not just in Australia, but across all our markets, offering delicious food at an affordable price and at the convenience our customers have come to expect. It’s promising that our markets continue to grow share despite the cost of living pressures.

As we had expected early in the year and have talked about on prior earnings calls, it’s clear that consumers continue to be more discriminating about what and where they spend. Between inflation remaining high, the elevated cost of fuel, interest rates, housing affordability pressures and more, consumers all over the world are having to pay more and more for everyday goods and services, proving time and time again in difficult economic times, the McDonald’s brand and our positioning on value is an opportunity for us. Take Germany, for example. The team has delivered remarkable results with the launch of the McSmart menu earlier this year, offering smaller, more affordable meals. It’s an incredible example of remaining agile and listening to our customers.

Our German team heard from customers that they were creating these options, and McSmart made our menu more accessible to them, contributing to outperformance and value perceptions when compared to the rest of the industry. And it was an important driver of delivering Germany’s 10th quarter of double-digit sales growth. We’re always pushing ourselves to stay one step ahead of the customer as we have throughout our history by innovating and reinventing ourselves even as we’re operating from a position of strength. McDonald’s is one of those consumer brands that has the permission and power to be part of people’s everyday lives. And one of the great things about McDonald’s is that we don’t rest on our laurels. We continue to find new ways to earn customer visits, and we believe the actions we’ve taken over the last several years have laid the foundation for our continued success.

This starts with strong local leadership and franchisee alignment. When we combine that with a fully modernized estate, a globally recognized brand, delicious food on our core menu and a high level of execution across our 4 Ds, our competitive strength is on full display. And while the macro environment will remain uncertain, we believe our brand and our business are well positioned to win. This powerful combination of brand, physical advantages and digital penetration has positioned us as an industry leader. And as we continue to keep a constant pulse on what’s top of mind for our customers, we believe that we’ll maintain our leadership position and continue to connect our brand to consumers in a way that drives growth and momentum for the business.

I remain confident in our Accelerating the Arches strategy and the enduring strength of the McDonald’s brand. I’ll now turn it over to Ian.

Ian Borden: Thanks, Chris, and good morning. Our third quarter results yet again demonstrate strong restaurant-level execution across our Accelerating the Arches growth pillars with significant increases in customer satisfaction across most of our major markets. Our restaurants are offering customers an affordable destination every day for delicious food and great service, driving nearly 9% global comp sales for the quarter. Thanks to the tireless efforts of our entire McDonald’s system, the McDonald’s brand remains stronger than ever. The resilience of our business is rooted in our ability to adapt to any environment. As expected, challenging macro dynamics continued this quarter and consumer spending remains pressured. And while top line growth has continued to moderate in line with our expectations, we’re outperforming the industry, and we remain the leader in value and affordability perception across most of our largest markets.