McDonald's' CEO Discusses Q3 2011 Results - Earnings Call Transcript

McDonald's (MCD)

Q3 2011 Earnings Call

October 21, 2011 11:00 am ET

Executives

James A. Skinner - Vice Chairman, Chief Executive Officer and Chairman of Executive Committee

Peter J. Bensen - Chief Financial Officer and Corporate Executive Vice President

Kathy Martin -

Analysts

Jon Tower - Morgan Stanley, Research Division

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

Keith Siegner - Crédit Suisse AG, Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

David Palmer - UBS Investment Bank, Research Division

Ronald J. Hottovy - Morningstar Inc., Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Jeffrey F. Omohundro - Wells Fargo Securities, LLC, Research Division

Andrew M. Barish - Jefferies & Company, Inc., Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Mitchell J. Speiser - Buckingham Research Group, Inc.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Jason West - Deutsche Bank AG, Research Division

Presentation

Operator

Hello, and welcome to McDonald's October 21, 2011 Investor Conference Call. As a request from McDonald's Corporation, this conference is being recorded. [Operator Instructions] I'd now like to turn the conference over to Ms. Kathy Martin, Vice President of Investor Relations for McDonald's Corporation. Ms. Martin, you may begin.

Kathy Martin

Good morning, everyone, and thank you for joining us. With me on the call today are our Chief Executive Officer, James Skinner; and our Chief Financial Officer, Pete Benson. Today's conference call is being webcast live and recorded for replay via phone, webcast and podcast.

Before I turn it over to Jim, I want to remind everyone that as always, the forward-looking statements in our earnings release and 8-K filing also apply to our comments, and both documents are available at our website, www.investor.mcdonalds.com, as our reconciliations of any non-GAAP financial measures mentioned on today's call with our corresponding GAAP measures. Now I'd like to turn it over to Jim.

James A. Skinner

Thank you, Kathy, and good morning, everyone. I'm pleased to share the latest business results for McDonald's, which highlight our continued strength. For the third quarter, global comparable sales were up 5%, and constant currency's operating income increased 8%, and EPS increased 6% to $1.45.

Our global success continues with every area in the world contributing. In the United States, comparable sales for the quarter were up 4.4%, and operating income grew 6%. In Europe, comparable sales for the quarter increased 4.9%, and operating income grew 6% in constant currencies. And in Asia/Pacific, Middle East and Africa, comp sales for the quarter increased 3.4%, and operating income grew 15% in constant currencies. And our momentum, I'm happy to say, is continuing into October with global comparable sales expected to be up 4% to 5%.

McDonald's continues to drive results around the world by offering what customers are looking for today more than ever: great value, outstanding convenience, a modern restaurant experience and relevant, great-tasting menu offerings.

Our entire system of franchisees, suppliers and employers are aligned around our Plan to Win. And we continue to focus on executing at the highest level against our 3 global priorities: optimizing the menu with the right food and beverage offerings; modernizing the customer and employee experience by upgrading every aspect of our restaurants from service to designs; and broadening accessibility through continued convenience and value initiatives. Now as I've said before, it's not just one initiative but a combination of all of them that continue to drive our growth.

In the area of menu, we're seeing focused on the right balance of core products and new offerings are helping us stay relevant with consumers. We've continue to build on our equity in chicken. In the United States, this quarter, McNugget units were up nearly 10% over last year as we featured 4 new dipping sauces. In addition, our premium chicken sandwich line with the new flavor profile and bakery-style whole grain bun continued to perform strongly.

In Australia, we launched 2 new chicken offerings, a chicken and cheese snack and one with the bone-in McWings. And both have been strong sellers. And in Japan, a renewed focus on Chicken Tatsuta, a chicken sandwich helped grow sales.

Beverages also remain on opportunity around the world. In the United States, we energized our McCafé line with 2 additions: Frozen Strawberry Lemonade and Mango Pineapple Real Fruit Smoothies. These new offerings added to our specialty Beverage lineup, helped to increase total McCafé beverage sales by 16% over last summer's strong numbers.

McCafé is expanding globally as well. We're building the business across Europe, where we have more than 1,400 McCafés with Germany, leading the way at over 750. In APMEA, Australia has 650 McCafés, and we're planning to have approximately 250 in China by year's end. And while international McCafés are focused on hot beverages right now, we have a number of markets planning to test or add real fruit smoothies and frappes over the next few years, starting with Australia next month.

Our practice continues to be an important day part for McDonald's as well as an opportunity for the future. In China, breakfast is achieving double-digit comparable sales increases, and today has reached over 8% of sales. Europe has only begun to scratch the surface, with the U.K. continuing to experience strong sales results of 13% of sales. And in the U.S., where breakfast represents about 25% of sales, we've focused consumers in our lineup of wholesome offerings, from oatmeal and Egg McMuffin to our Yogurt Parfait and Fruit and Walnut salad. Total units on all of these products combined to increase more than 20% over last year and helped us to continue making gains during this very important part of the day.

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