McDonald’s Corporation (MCD)
Q4 2009 Earnings Call Transcript
January 22, 2010 11:00 a.m. ET

Executives

Mary Kay Shaw – Vice President of Investor Relations
James A. Skinner – Vice Chairman of the Board & Chief Executive Officer
Peter J. Bensen – Chief Financial Officer & Corporate Executive Vice President

Analysts

David Palmer – UBS
Matthew Difrisco – Oppenheimer & Co.
Sara Senatore – Sanford Bernstein
David Tarantino – Robert W. Baird & Co.
Steve West – Stifel Nicolaus & Company.
Steven Kron – Goldman Sachs
John Glass – Morgan Stanley
Mark Kalinowski – Janney Montgomery Scott.
Jeffrey Omohundro – Wells Fargo Securities
Jeffery Farmer – Jefferies & Co.
Joseph Buckley – Bank of America Merrill Lynch
Jason West – Deutsche Bank Securities
Mitchell Speiser – Buckingham Research
John Ivankoe – J.P. Morgan
Gregory Badishkanian – Citigroup
Keith Siegner – Credit Suisse
Tom Forte – Telsey Advisory Group
Paul Westra – Cowen & Company
Howard Penny – Hedgeye Risk Management
Bob Coleman – Individual Investor

Presentation

Operator

Welcome to McDonald’s January 22, 2010 investor conference call. At the request of McDonald’s Corporation, this conference is being recorded. Following today’s presentation there will be a question and answer session for investors. (Operator Instructions) At that time investors may ask questions by pressing *1 on your touchtone phone. I would now like to turn the conference over to Ms. Mary Kay Shaw, Vice President of Investor Relations for McDonald’s Corporation. Miss Shaw you may begin.

Mary Kay Shaw – Vice President of Investor Relations

Thank you. Hello everyone and thanks for joining us. With me on the call this morning are Chief Executive Officer Jim Skinner and Chief Financial Officer Pete Bensen. 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 wanted to remind everyone that as always, the forward-looking statements in our earnings release and 8K filing also apply to our comments.

Both documents are available on investor.McDonalds.com as are reconciliations of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. And now, I’ll turn it over to Jim.

James A. Skinner – Chief Executive Officer

Thanks Mary and good morning everyone. I am pleased to report that our business growth continued in the fourth quarter contributing to another strong year for the McDonald’s brand. Global comparable sales were up 2.3% for the quarter and 3.8% for the year. Constant currencies operating income grew 14% for the quarter and 10% for the year. 2009 marked our sixth consecutive year of positive comp sales in every area of the world, a feat that underscores the ongoing strength and relevancy of our plan to win business strategy.

In January, we expect to post another month of positive global comparable sales with both Europe and Asia Pacific, Middle East and Africa positive and the US relatively flat. In this challenging economic environment we feel very good about our trends and we continue to grow by adapting to our customer’s needs and elevating the key drivers of our plan to win those being more menu variety and choice, better restaurant operations, greater convenience and day party expansion, every day predictable low prices and ongoing restaurant investment.

In all these areas we’re innovating and improving and pushing ourselves to stay in step with consumers in order to give them the most outstanding dining experience in every way. This strategy and alignment helped us achieve strong results across the system in 2009. In the US, comp sales increased slightly for the quarter and up 2.6 for the year contributing to an operating income growth of 5% and 6% respectively. We’re proud of these results especially given the high unemployment and its impact on consumer spending. In the US last year our comp sales gap against the industry was positive every week of the year. Despite an overall decline in the informal eating out category we increased our market share and strengthened our leadership position. We drove results by delivering exceptional value, menu choice and convenience.

The US maintained a strong focus on value at every level from the dollar menu to mid tier and premium offerings. This continues to make us a compelling choice for customers in this uncertain time and we continue to win through menu choice with a balance of familiar and popular core products as well as new items to keep us relevant. From our café specialty coffees and our line of premium angus burgers were new offerings in 2009 and they helped us make McDonald’s a more clear destination for outstanding quality at the best value.

We’re pushing ahead with more choices including the national launch this month of our Mac Snack Wrap and breakfast dollar menu. The Mac Snack Wrap is a snack version of our Big Mac. It is a four tier product with a good margin and it fits well in to our growing snack day part or as an add-on to a meal and certainly can be eaten on the go. The breakfast dollar menu introduced in collaboration with our franchisees gives us a national voice on value at breakfast. Both of these highlight our commitment to keep modernizing our menu and provide the products that our customers are looking for. This month, we’re also launching free wireless Internet access at nearly all of our US restaurants. And this will make us the largest provider of free Internet in the country and make our restaurant experience even more valuable.

Now, turning to Europe comparable sales were up 4.8% for the quarter and 5.2% for the year. In constant currencies operating income grew 10% for the quarter and 8% for the year. Europe’s guiding strategies of upgrading the customer and employee experience, building brand transparency and enhancing local relevance continues to drive results. In the fourth quarter we grew our market share in the informal eating out category across Europe including the UK, France, Germany, Italy and Spain.

A key to this growth was the continued focus on our three tiered menu platform everyday low price, core and premium delivering choice and value across the menu. In addition, we continued to enhance our four tier menu platform by delivering a category of smaller premium affordable products. We expanded our line of popular Petite Nieulle in France and our little tastier offerings in the UK and we’ve introduced fourth tier products to other markets such as Germany with the snack deluxe. All of this is building greater relevancy for our brand and stronger results for our bottom line.

We also saw success from an increased emphasis on day party expansion, particularly breakfast. In Germany, we expanded our breakfast line up with classic and new offerings as part of our easy morning breakfast launch and it is yielding solid results. In the UK, our number one breakfast market in Europe, strong media support helped generate some of our highest breakfast sales to date. In addition, Europe’s ongoing coffee strategy including the stand alone McCafe concept is resonating with European consumers with McDonald’s now being the number one seller of coffee in Germany. Many of these opportunities are enhanced by Europe’s leading role in the re-imaging whereby the end of 2011 85% of Europe’s 6,800 restaurants will be re-imaged.