Hello, and welcome to McDonald's First Quarter 2019 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.

Good morning, everyone and thank you for joining us. With me on the call this m morning are President and Chief Executive Officer, Steve Easterbrook and Chief Financial Officer, Kevin Ozan. Today's conference call is being webcast live and is also being recorded for replay on our website. Before I turn it over to Steve, I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments. Both documents are available on www.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 Steve.

We're off to a strong start for 2019. Our broad-based momentum around the world continues as we further execute on our Velocity Growth Plan. Global comparable sales increased 5.4%. That's over $1 billion of growth across the system for the quarter. This marks our 15th consecutive quarter of positive global comp sales despite some of the continuing macroeconomic uncertainties around the world. We also grew global guest counts for the quarter. In the U.S. we are pleased with our performance to start the year. The market continues to execute against the most ambitious plan in our history. And whilst we recognize we have a lot of hard work ahead of us we are encouraged with our progress and improved franchisee cash flow to start the year. Our customer satisfaction scores are improving as more guests are able to enjoy McDonald's in our modernized Experience of the Future restaurants. For the first time since we've begun our EOTF rollout we are seeing a benefits to our overall U. S. sales comp. Where 2018 focused on considerable transformation and building a foundation for growth our 2019 focus is on operation execution in our restaurants and optimizing the experience for our customers. For example the UK. has now achieved a remarkable 13 consecutive years of comparable sales growth. The market's focus on value menu innovation and McDelivery is resulting in balanced growth in both average check and guest counts including record high guest counts for the month of March. We're also seeing strong performance in Australia. I visited Sydney and Melbourne last month and continue to be impressed with how the team is successfully driving growth across all dayparts. The market has now grown comparable sales for the past 20 consecutive quarters. With strong leadership and franchisee alignment the market's excelling at the fundamentals of running great restaurants growing their delivery business and leveraging the investments we've made in digital. Our customers in Australia are also taking notice of the effort we are putting into delivering delicious feel-good moments. Today more customers are using our global mobile app and McDelivery to order delicious McDonald's food on their terms. And an increasing number of customers are choosing to use our self-order kiosks to place their orders. The Australia team has more than doubled McDelivery awareness through our strong partnership with Uber Eats. And with our barista trained crew executing at a high-level both in restaurants and in the drive-thru coffee has become the most frequently ordered item on our McDonald's app. The Progress we are seeing in the US, UK and Australia demonstrates how our Velocity Growth plan is working and enabling us to deliver broad-based growth across our segments. With that I'll turn it over to Kevin to share more about our top line performance.

Thanks Steve. With global comp sales up 5.4% for the quarter each of our operating segments contributed meaningfully to our growth. As a reminder in January we evolved our organizational structure to support our more heavily franchised business model enabling even more sharing and scaling of best practices and innovations across markets. Not only does our new structure provide operational benefits it also increases visibility into the contributions made to our overall business by both our wholly owned markets and our Developmental Licensee markets. First quarter for the U.S. was strong with comparable sales growth of 4.5% and all dayparts contributing to the growth. While comp guest counts were negative for the quarter the U.S. continues to experience strong average check growth driven by balanced contributions from both product mix and strategic pricing. Consumer relevant national promotions such as the bacon event and the two for $5 Mix and Match deal which included our fresh beef quarter pounders for the first time performed well in the quarter. We also introduced Donut Sticks at the Breakfast daypart and this new item resonated with our customers. Throughout 2019 we'll continue to pulse in national deals like the two for $5 Mix and Match that was re-launched yesterday. These deals will complement local value at both breakfast and on the $1 $2 $3 Dollar Menu as individual co-ops decide which menu items resonate best with their customers. As we continue on our EOTF journey in the US and as Steve mentioned earlier we are now seeing an overall net positive contribution to comp sales from our aggressive modernization efforts. This means that the sales lifts from completed projects now exceed the downtime impact from current projects under construction. During the quarter we converted an additional 400 restaurants to EOTF. We have now completed over 8,000 EOTF restaurants or about 60% of our estate in the US. We still expect to complete approximately 2,000 projects this year. Turning to the International Operated segment. Comp sales were up 6%. The largest contributors in the segment were our big five international markets: Australia Canada France Germany and the UK with the UK and France leading the way. France experienced its highest comp sales increase since 2011 along with its highest ever market share. The market is successfully optimizing products such as the Big Tasty and Big Mac bacon along with new promotional offerings. And last month France also began serving our iconic Egg McMuffin all day. Finally comp sales in the International Developmental Licensed segment were also up 6% for the quarter with each geographic region in the segment growing both comp sales and guest counts. China continues to be a competitive market. Late in the quarter we introduced a new everyday value offering which complements our Extra Value Meal launch in late 2018. We also opened more than 90 new restaurants in the quarter in China driving growth in systemwide sales and a gain in market share and we're well on our way to opening about 400 restaurants for the year. Now I'll turn it back to Steve to expand on the accelerators which are enabling our global growth.

Thanks Kevin. Since the launch of the Velocity Growth Plan we've been increasingly focused on using technology to make our customers experience easier and more convenient when they visit our restaurants. From our global mobile app to our self-order kiosks to our digital menu boards we've established our digital foundation. We've created an ecosystem that more and more of our customers are using to order pay and receive the delicious McDonald's food on their terms. Now we're building on that foundation with our recent acquisition of Dynamic Yield a leader in personalization and decision logic technology. Dynamic Yield's technology varies suggested offers by time of day weather and trending menu items. Over time using data from the millions of customers that we serve daily the technology will get smarter and smarter through machine learning. And using the data collected based on current restaurant traffic at the drive-thru the technology will begin to suggest items that can make peak times easier on our restaurant operations and crew. We've already begun our rollout and now have the technology up and running in 700 drive-thrus across the U. S. Long term this technology will work across all of our digital platforms including our self-order kiosks and our global mobile approximately. When our technology ecosystem is linked it will provide a seamless ordering experience for our customers and we'll leverage our size and scale to take advantage of being one of the first brick-and-mortar companies to integrate decision logic into the customer ordering process. By acquiring Dynamic Yield we also have access to strong data science and engineering talent who will help us stay ahead of the curve when it comes to connecting with our customers in more personalized ways. This acquisition is just one tangible demonstration of the steps we're taking to leverage industry-leading innovative technology to accelerate our growth and offer our customers and even easier more enjoyable experience. In addition to using technology to create seamless experiences we're also maintaining our focus on improving the fundamentals of running great restaurants. For example drive-thru remains a popular way for many of our customers to order their Big Macs Chicken McNuggets french fries and more. That's why we've never been more focused on improving the experience of the drive-thru. In particular the speed of service. Many of the improvements we're exploring at scale are taken from best practices we've seen in markets around the world. In Italy having a disciplined daily focus on running great restaurants has helped the market deliver some of the strongest sales performance in its history. As part of their overall effort to strengthen operations they identified an opportunity to improve speed of service by running multiple drive-thru competitions in the restaurants. With our crew fully engaged they were able to make meaningful reductions in drive-thru service times and customers are noticing. Our customer satisfaction scores have increased across all categories from speed of service to friendliness to accuracy. And in the U.S. our restaurants participated in an incentive program where they competed against each other to deliver the best drive-thru service times in a fun and engaging way. We introduced the competition in the middle of Q1 and it made a difference with lower service times whilst improving guest counts in many of our restaurants. I'd like to personally congratulate our Boise Twin Falls Idaho Falls co-op for winning our first quarter drive-thru challenge. But more importantly for serving our guests faster at the critical breakfast daypart. As of our customers' expectations for service keep evolving we'll continue to share our best learnings like these across the globe. The work we're doing to improve drive-thru service times is only one way we are ensuring we run great restaurants. We're also are finding new ways to create more excitement around our customers favorite core menu items by using existing ingredients which ensures we do not add complexity for our restaurant operations and crew. For example after a successful limited time offering of Big Mac Bacon Burgers in Canada we launched campaigns to connect with consumers love for bacon during the quarter with similar offerings in the UK France and Russia. And in the U. S. we entice customers to add bacon not only to their Big Macs but also to our fresh beef quarter pounders. The US market even stole shamelessly from our friends in Australia by introducing cheesy bacon fries. This kind of smart menu innovation is a great example of how we're able to surprise and delight our customers whilst balancing their demands for speed of service with the complexity of operating at the scale of McDonald's. We are pleased with the enhancements we're making to the experience guests have when they visit our restaurants but we also know how important it is continue meeting our customers increasing demands for convenience especially through delivery. Delivery remains a key part of our Velocity Growth Plan. It has been one of our most successful accelerators from the start likely due to the speed at which we began to implement it and because we began scaling our delivery offering at a time when customers are eating out less. Delivery has grown to a $3 billion business for both McDonald's company and franchise restaurants globally and we believe there's a lot more opportunity to grow. We now offer McDelivery in over 20,000 restaurants across more than 75 countries which is more than half of all McDonald's restaurants globally. Our ability to continue expanding our delivery reach further demonstrates how our size scale and convenient locations close to customers gives us a tremendous advantage. We're seeing solid growth in delivery and it continues to be a meaningful contributor to comp sales in a number of markets. Awareness remains one of our greatest opportunities with delivery so we're committed to making sure more and more customers are aware of McDelivery and the opportunity that exists for them to enjoy McDonald's wherever they are. Now I'll turn it over to Kevin for our financial highlights of the quarter.

Earnings per share was $1.72 for the quarter a 5% increase in constant currencies. Our results benefited from strong operating performance despite lapping higher gains on sales of restaurants due to our heavier refranchising activity in first quarter 2018. While we still have some ongoing refranchising of restaurants our major refranchising efforts are winding down. We grew revenue 2% in constant currencies for the quarter marking our first quarter of growth since our refranchising strategy began in earnest in 2016. Given our strong comp sales performance overall margin dollars increased in all segments and grew more than $100 million in constant currencies on a consolidated basis. This contributed to our operating margin for the quarter of 42.3% reflecting growth of 60 basis points versus last year. Our franchise margin dollars grew 7% in constant currencies. Due to a change in presentation of sublease income and expense within franchise margins as a result of the new lease accounting standard our franchise margin percent was negatively impacted 70 basis points. To be clear there is no impact to our franchise margin dollars as a result of the new standard but this reset of the franchise margin percent will be ongoing. Our overall franchise margin percent declined 120 basis points due to this accounting change as well as depreciation expense related to EOTF in the U.S. Turning to our company-operated restaurants. Consolidated margins declined 20 basis points to 15.8% for the quarter. IOM segment company-operated margins increased 40 basis points as our strong sales performance more than offset higher labor and occupancy costs. US company-operated margins were challenged due to continuing labor pressures along with higher commodity costs and EOTF-related depreciation. In the U.S. first quarter pricing was up about 2% while commodity costs for the quarter increased approximately 3%. While we expect commodity pressures to ease somewhat throughout the year we now anticipate our U.S. grocery basket will be up 2% to 3% for the full year. Across the big five markets in the IOM segment menu prices averaged about 2% higher and commodity costs were up about 1.5% for the quarter. We still expect commodities to be up about 2% for the full year. G&A for the quarter was down 4% in constant currencies at 2.1% of systemwide sales. Steve talked earlier about the strategic purchase of Dynamic Yield to advance our digital capabilities. As a result of this acquisition along with some R&D investments in other areas of technology we now expect full year G&A spend to be relatively flat in constant currencies versus last year. Our effective tax rate was 27.5% for the quarter as we finalized the application of new regulations issued in the first quarter related to U.S. tax reform. We still expect our full year tax rate to be in the range of 24% to 26%. Foreign currency translation hurt our first quarter results by $0.09 per share. At current exchange rates we expect the impact of foreign currency to be slightly less for Q2 and then ease in the back half of the year with an estimated full year headwind of $0.18 to $0.20. As usual this is directional guidance only because rates will change as we move through the year. Now I'll turn it back to Steve.

In addition to our intense focus on driving performance as one of the world's largest restaurant companies and most recognizable brands we know we have the responsibility and opportunity to take action on some of the most pressing social and environmental challenges in the world today. Last year we announced priorities where we felt we could use our scale for good to make the biggest difference in areas that intersect directly with our business operations. These areas include climate action sustainable beef packaging and recycling our commitment to families and youth opportunity. We've continued to make progress in these areas and other parts of our food supply chain by collaborating with millions of customers employees franchisees suppliers and other partners. For example prior to our Scale for Good campaign we set a bold target to source 100% cage-free eggs by 2025 in the U.S. Now just 3.5 years into the 10-year plan we're proud to announce that the U.S. is already one-third of the way toward fulfilling our goal. This means that over 725 million cage-free eggs will be served in our U.S. restaurants in 2019. And many of our other global markets are also in the process of transitioning to cage-free eggs. In addition to using our scale for good we're continuing to make a broader set of investments in people across the entire McDonald's System. Together with our franchisees we provide jobs for almost 2 million people across the world and are one of the world's largest employers of women. Whilst women have strong representation in leadership positions throughout our organization and in the U. S. make up 60% of all restaurants managers. We're committed to making even more progress. That's why by 2023 we will improve the representation of women at all levels of the company achieve gender equality in career advancements and champion the impacts of women on the business. We recently announced this commitment on International Women's Day as we launched Better Together a sweeping initiative to improve gender balance and diversity. As part of this we'll put training and systems in place to enhance equality in career advancement for women. And we'll be encouraging our franchisees and suppliers worldwide to deliver strategies that promote gender balance and diversity. Just before I wrap up my prepared remarks I did want to take a moment to acknowledge the passing of someone who played a pivotal role in McDonald's. Last week Jeff Stratton former President of McDonald's USA passed away. Jeff was with McDonald's for over 40 years and in that time, also ran our global restaurant Solutions Group, our Innovation center and at one-time our food improvement teams around the world. He had an unwavering passion for running great restaurants and there was no greater brand ambassador than him. Jeff truly made us better. We always say that McDonald's is an organization built on people and Jeff's contribution at McDonald's will always be remembered. As I close despite any uncertainties we have one of the world's most iconic brands we're leveraging technology to improve and modernize the way we connect with our customers we have a dynamic menu of delicious affordable food offerings our customers value and enjoy. We have great suppliers who partner with us to deliver at the scale of McDonald's. We have the most dedicated franchisees who are committed to running great restaurants. And we have the world's best and hardest working crews striving every day to delight our customers. When we bring all these elements together we are confident about the road ahead and we are well positioned to win for the long term. And now we'll open it up for Q&A.

Our first question is from Eric Gonzalez with KeyBanc.

Hey, thanks for taking my question. My question is related to traffic trends in the US. I was wondering how U.S. traffic trended through the quarter and specifically to what extent the peed of service competition introduced mid quarter helped improve the traffic trajectory? And is the benefit from drive-thru competition sustainable? Or does it fall off when the incentive goes away? Thanks.

Yeah. Eric I'll start with traffic. So we said traffic was negative in the U.S. I guess I'd say it's in line with kind of where it's been the last few quarters. No significant change in trend as far as the overall traffic number. And I'll Steve do you want to talk about the competitions in the drive-thru?

Yeah. Absolutely. I think, just further context around why we're focusing on this. As you can imagine the last probably 12 to 18 months the majority of the focus has been on the in-restaurant dining experience we were rapidly rolling out Experience of the Future. We're focusing on kitchen procedures as we roll out fresh beef quarter pounders for example. And we just thought this was the right time given a lot of that disruptive activity we've worked our way through that now. We can get back to the basics of focusing on running better restaurants. So we decided to kick off with a focus on drive-thru during the peak hours of breakfast which was clearly an opportunity for us. And yeah, we managed to reduce service times which is really encouraging. It was a later start in the quarter. But certainly the enthusiasm in the kind of co-op to co-op competitions was great. So we're going to continue with a series of these throughout this year. And certainly having been in the field I was in Miami and Fort Myers towards the end of the quarter I was in Atlanta and Baton Rouge Indiana at the start of the quarter certainly the conversation amongst our field leadership and owner/operators is they're excited about having a clean run at 2019 because we really can just focus the managers the crew and all of our attention on just the fundamentals of running great restaurants. So encouraged by the start, want to see some drive-thru service time decreases. We did see decreases in service time in the U.S. in the quarter. And it's not just the U.S. by the way. This is a global focus that we had a start of year meeting will all of the managing directors of our major markets. And we're seeing some remarkable results in countries like Germany Italy Poland Spain anywhere between 20 and 40 seconds taken off the drive-thru service times literally just within that quarter. So I just really I guess just want to express there is organizational enthusiasm around this and it's great that we get into these sorts of conversations with each other because this is what we enjoy and this is what we are good at but we want to get better at.

Our next question is from Andrew Charles with Cowen.

Great. Thank you. I have two separate questions. Steve it's been clear very clear since the February franchisee leadership Council election there's better alignment in the US system between you and the operators and that's definitely evidenced in part by 1Q's improvement in sales. After the EOTF CapEx contribution of 55% was extended in November by one year from 2019 to 2020 how sacrosanct is keeping that 2020 deadline for the elevated CapEx contribution to help build on the momentum of improved relations? And then, Kevin a separate question for you. You previously guided that the EOTF benefit to comps was more likely to be a second half 2019 benefit. Kudos obviously for the benefit in 1Q. But could you talk about why the first quarter did in fact benefit from net remodels beyond conservatism in the guidance? And if you could also quantify the 1Q contribution for the EOTF that would be helpful as well? Thank you.

Okay, Andrew, I'll take the first couple of those questions because I think there was a third and a fourth one. But Owner/Operator sentiment it's been a really constructive quarter. I mean again just to provide the context I often say there are four differentiating advantages that McDonald's has already over anyone else in our sector. Geographic spread I think is one of those which makes it incredibly resilient. Just The iconic brands is a differentiator for us. Our financial strength both at a restaurant level organizational level as well. And the fourth is our Owner/operators. And just having constructive relations with the owner/operators and our market leadership always puts us in a stronger position. So with the newly elected leadership of the National Franchisee Leadership Alliance there's been really constructive dialogue about how do we remove any barriers to growth so we can all get after what we want to do, which is serving more customers more often. So it's been a good quarter. I think there's been really constructive dialogue. Everything from unlocking one or two of the opportunities that we can get after the McDelivery opportunity more so, as well as now the local co-ops are beginning to invest a little bit more on our marketing spend on a local basis rather than national. And again to put that into context. Certainly the vast majority of our marketing spend in quarter one last year was national as we launched the $1, $2, $3 Dollar Menu. We've actually now swung to a little bit more of an equal balance certainly in this first quarter as we've got behind local value and local breakfast support as well. So I think all these things are helping just get the right balance in how we leverage our scale but also recognize the local differences as you go around the country. With regards to EOTF. We did want to ease just some of the financial and any of the concerns operators had around the financial burden of the rapid rollout. So we offered an extra couple of years at a slightly lower supported level pretty much more our typical support level. But the heightened support in the US through 2020 that just gave each and every Owner/Operator an opportunity just to what we would call level load their projects if they felt was going to be too much of a pinch too much pressure on their balance sheets through 2019 and 2020. I guess what's been interesting is the operators have really appreciated that option but the majority are still choosing to complete the EOTF projects by 2020. So I would say that we would still expect to be substantially complete by the end of 2020. But those who felt they need a little bit longer have appreciated that opportunity and we'll support them with that as well. But it will be at the reduced level. Partly because by the time we get to 2021 and 2022 we're going to have other ways to allocate our investment support that we think will be better for the long-term business.

And then the EOTF benefit that you mentioned Andrew. We were saying we expected it to turn around mid-year 2019. I guess I'll say there was a little bit of conservatism in that. But we also have been able to reduce our downtime on projects as we've gotten into 2019. I think last year I talked about that there were a few things we were looking at. One to be able to reduce downtime a little bit. And two to be able to have kind of grander reopening plans so that when restaurants came back up they were able to recover the sales quicker. And we've done a little bit better job on each of those. And so the fact that we had about 400 projects in the U.S. now in the first quarter and having all those projects that were completed in 2018 certainly made it a net positive as we got into the first quarter. We would expect that net positive to continue now ongoing for the rest of the year. We don't want to quantify each quarter's benefit because we don't want to get into a quarter by quarter benefit it's effectively built into now our ongoing business. But we do expect that to continue for the rest of the year now.

And just to add on again just to emphasize the remarkable speed with which we completed projects in 2018 was clearly incredibly hard work. But what it means is now as we turn into this year you've got more than 50-50 chance of visiting a modern looking McDonald's that represents the direction we're heading into as opposed to reflecting on the past. So we're over the halfway mark which as we have noticed from other markets around the world. Once you cross that kind of 50% as I say just from an everyday customer experience there's more chance you're going to be going to a great-looking McDonald's restaurant where the service experience is smoother the technology is more supportive in helping you through all that. So we feel good about where we're at. And we still completed 400 projects this quarter. So still feel like we're off to a good start this year.

Our next question is from John Glass with Morgan Stanley.

And thanks for sharing the news on Jeff as sad as that is it is. He my question is a couple of things. One is Kevin is there a way to think about margins in the U.S. and how they progress. Last year margins stepped down the back half due to some of the EOTF impacts. So should we think about it as that pressure eases in the back half? Or do you think about this is the new run rate for U.S. margins? That's question number one. And then two you did take up your G&A. and I understand why this year, is this the right new base level to run G&A at then and it kind of grows from this new I don't know whatever it is $2.2 billion level if that's where it ends up in 2019?

Okay John I'll take both of those. I assume when you say margins we're talking about the company-operated margins on the U.S. side. Well maybe I'll talk about both since I wasn't sure actually. On the company operated side we have a few things going on as you know. Commodity costs were up about 3% in the first quarter. We've said that will be about 2% to 3% for the year. So that should get a little bit better as the year goes on but not easing I'll be say a ton. The other things that we do have as we went into this year we talked about depreciation from the company operated EOTF projects as being about $15 million for the year. So obviously about a quarter of that is going to hit each quarter. And then certainly kind of wage pressures are going to continue to impact us. I'd say the one piece where there is some opportunity going forward is on labor productivity side. There are two things right now that are negatively impacting or have been negatively impacting labor productivity. One being the EOTF projects that we've had. And so as those company-operated projects start winding down that should help some of our productivity. We'll finish all of the company-operated EOTF projects this year so that will be a help as we move forward. And the other is the fact that guest counts are still negative. With negative guest counts that does create a challenge just from the labor productivity side. And so I think if once we're able to turn guest counts positive that will help the labor productivity side also. The other thing I would just note I guess is the company-operated comp sales are a little bit lower than our overall comp sales. And so the 4.5 that we reported for the U.S. based on where we run our company-operated restaurants and the challenging geographies there we didn't achieve that 4.5 on the company operated side. That put a little bit more pressure on the company-operated margins also. The plus of that is I know you guys often looked at company-operated margins as a proxy if you will for how the franchisees are doing. The Franchisees cash flow has been up every month for the last five months through March. So that's a big positive from our franchisees side. And as you know with us running about 95% franchised in the U.S. that's really important for our business. And so that's a big positive. On the franchise margin side there's two things that impacted our franchise margin percentage this quarter. One is the EOTF depreciation. Again we talked about it as we entered the year there's about $100 million of pressure from EOTF depreciation on the franchise margins. So again about a quarter of that hits each quarter. Second is this change in the way we present subleasing income and expenses as a result of the new lease standard. So that impacted U.S. franchise margins by about 130 basis points. It doesn't impact the dollars because the offset to that is revenue. So effectively there's about $20 million or so that we now just gross up revenue and gross up franchise costs but it does reduce that franchise margin percentage if you work through the math. So those are the margins. On the G&A side we talked about and I mentioned in my script obviously two things are impacting G&A this year. The biggest one obviously is the acquisition of Dynamic Yield. Along with that though we've also started investing in some R&D and a few others areas of technology. And the combination of those is what has caused our revision in guidance. The plus is over the last few years we have saved on a gross basis over $600 million. And so we've reduced the amount of kind of maintenance run the day-to-day business G&A and now we're investing a bigger percentage of our G&A in growth based G&A. Moving forward the way we think about G&A is it should be roughly around 2% of systemwide sales or so. So that's the way we think of it on a go-forward basis.

And John I just want to thank you for your comments on Jeff. I know many of you on this call would have had time with Jeff. And I was honored to attend the funeral Mass yesterday, for Jeff the occasion was an absolute testament to the memory and the celebration of all that Jeff contributed to life in general and all of our lives. And just as a reflection on just the way that we believe in the uniqueness of the McDonald's family the turnout of owner/operators suppliers and colleagues past and present was just absolutely enormous yesterday and again speaks to the three-legged stool and the impact Jeff had. So thank you for your comment on that. Appreciate it.

Our next question is from Matt DiFrisco with Guggenheim.

Thank you. Can you guys speak to a little bit on the delivery side. I'm just looking at how much perhaps was from that $3 billion incremental stemming from the U.S. I'm trying to figure out the percentage that you're doing in delivery now. I know last time you spoke I think it was still coming in around 70% incremental. I'm wondering if that rate has come down a little bit because obviously the comp was very strong. I'm just curious though if it's around that almost 10% level or so or $1 billion of your system sales that perhaps is that the majority of the comp and is the incrementality may be slowing a little bit from that 70% level?

Thanks, Matt. Again broader commentary on delivery. We certainly have been finding in these initial first couple of years that the majority of that business is incremental and that the growth and even the year-on-year growth once we got it established is really driven by raising consumer awareness and then just getting more people familiar with the fact that we offer McDelivery in the first place. That incrementality stays strong. It's probably fair to say that we got a quicker leap on delivery in many of our international and mature international markets the likes of UK, Australia, France, Canada and a number of our midsized markets doing some pretty strong numbers as well whether that's Netherlands and Belgium and Spain and Italy. So they're now actually beginning to comp themselves. And not only are we adding new restaurants as the third-party operators expand their networks but we're also beginning to get the year-on-year comp on delivery as well. So we can track that and we're getting some really, really encouraging numbers as we get into that second year. So even though those came out of the traps really, really strong. We're getting comp delivery growth as well as adding new incremental restaurants which is great. It's fair to say we had a slightly slower start in the U.S. So it begun to contribute to the comp as we worked our way through 2018 but not in a particularly significant fashion. But as we've been working with Uber Eats in particular on coverage and trying to get as competitive a deal that both supports the partnership with Uber Eats but also helps the unit economics for our owner/ operators we believe that we're on the verge of unlocking some of that delivery potential more within the U.S. So once we have a good number of restaurants up on delivery in the U. S. the actual guest counts per restaurant per day is still some way behind elsewhere in the world but we're confident that we're going to more rapidly pick up the pace. And I think you can expect to see as we get a critical mass on our system more marketing support behind it, so that we can raise consumer awareness. And certainly the Owner/Operator support will be no noticeable because I know they feel we had a great series of conversation through this quarter and we made it more economically exciting for them to grow the delivery business as well as their traditional business. So we feel we're in a good place. From a $3 billion business to date we still think there is substantial growth opportunity ahead. And I can assure you from a global perspective as well as drive-thru service times being one of the KPIs that I personally have chosen to lead through this year really maximizing this delivery opportunity is another one as well. So we've got a great level focus on it. I'm certainly excited that the U.S. system has got a renewed figured behind it as well.

So just to confirm delivery was not the majority of the comp in the US?

Right.

Our next question is from Brian Bittner with Oppenheimer.

Thank you. Steve in previous quarters you've talked about how your breakfast business in the U.S. has been a drag on the U.S. comp. And the question is did this daypart show a meaningful improvement as we went into the first quarter? Did it contribute meaningfully to the overall improving trends in the U. S.? So any color on breakfast would be great. And Kevin you talked about the costs on the food basket in the U. S. going from one1 to 2 to 2 to 3. Can you just give us some more color on what drove that change in your expectations?

So breakfast was a meaningful contributor. I wouldn't say it was a majority contributor but it was a meaningful positive contribution to like-for-like sales in the quarter which is clearly an encouraging reversal of the previous trends that we'd acknowledged. We're still in a market share fight overall because there are more and more people offering breakfast as a competitive play. But certainly to get back to that growth trajectory is encouraging. The other piece I would say is it really wasn't until the back end of the quarter that the shift from national to local marketing dollars really begun to take effect because that was a decision that was made towards the end of quarter four. So it takes certainly a couple of months to adjust media buying plans marketing plans as well. So I think we feel encouraged. I know that the focus on just the restaurant operation and in particular the drive-thru played a positive role in that introducing new menu item news like the Donut Sticks further supporting the McCaf investments we've made. They all started to contribute to that. So operations menu items and media drive marketing. So I think it was a strong start to the year but we've still got more work to do if we really want to be taking share back at that important daypart for us.

And then Brian related to the change in commodity guidance for the year from 1 to 2 to 2 to 3 the biggest change is due to an expected increase in pork prices a little bit on beef being a little bit higher than what we originally anticipated but most of it is related to pork prices.

Our next question is from David Tarantino with Baird.

Hi. Good morning and congrats on a great start to the year. My question is on the U. S. comp and the average check growth in the U.S. I think if I heard Kevin correctly the traffic trend didn't change much from Q4 to Q1 which suggests the check growth did accelerate. So I guess the two parts of my question are one do I have that right? And then secondly what drove that? And what do you think the sustainability of that high check growth is in the U.S.? Thanks.

I'll have the first stab at that one David. So yes average check growth helps cover up I still think the continuing decline that we recognize in guest counts. So the average check growth was strong. Clearly what we do is drill into that to see where is that growth coming from and it's a combination between product mix shifts and pricing. And what I think is encouraging for us is that the product mix shifts which is how many items in a bundle and also what people are choosing to buy outweighs the pricing impact. You don't want the pricing to get too far away and Kevin may want to talk about our pricing levels. But if you think about the product mix shifts as we grow the delivery business for example the average check is 1.5 to 2 times that of a traditional in-restaurant average check. So that will naturally help to skew business skew the average check higher. As we continue to build customers using the self-order kiosks we tend to get a higher average check because people dwell a little longer at the self-order kiosks. So, And then you've got some of the menu item work we've done in terms of maybe simple things just like adding bacon. The bacon promotion through Big Mac and on our quarter pounders. That helped us grow average check a little as well. So all these activities that we've invested in or that we've built have helped grow the product mix shift overall. So I'm encouraged because you don't want the pricing element to be overly dominant in this year particularly when customers are still feeling the pinch a little bit. But I believe it's a combination of many of the actions that we've taken have actually started to produce a healthy growth in average check and that is what I think we feel confident can been more sustainable.

That covered everything I was going to say. So I don't have anything else to add.

Our next question is from Jeff Bernstein with Barclays.

Great, thank you very much, Maybe a two-part question on US profitability. The first on the labor inflation. Wondering if you can give any kind of color similar to what you give on commodities in terms of the basket and how much of it is statutory versus market pressure and how are you suggesting the franchisees absorb that which kind of feeds into the other question which is you mentioned franchisee profitability is now up five I believe consecutive months. I'm just wondering if you'd opine on what you think the outlook is for 2019 and whether there's any initiatives you've offered in terms of how to better protect against that labor inflation and the rising COGS you just mentioned. Thank you.

Yeah. I'll start. There were 20 or 21 states that increased wages I think at the beginning of the year. So those certainly have an impact on wage rates throughout the year. As you know we sat wages for the company operated. Obviously the franchisees they make their own decisions related to wage rates. It depends where in the country as far as what the rates are and how competitive it is with other key competitors around there. So but it is fair to say that I think labor inflation is going to continue to be a challenge. We will continue to look for ways to be as efficient as we can in our restaurant operations to try and help mitigate any of that inflation. But I think that's going to be a continuing challenge for us and the industry. So I guess I'd leave it at that.

The other thing I would add that clearly I mean our average starting wage now in company-owned restaurants is now more than $10 an hour. So whilst we don't collect that data from our owner/operators. I think it's reasonable to believe that it would be a similar ish number. And clearly both of those are well above the federal minimum. So as Kevin said, the labor cost is going up certainly far higher than any typical rate of inflation. So it's something we're very mindful of. And yeah, we work with the owner/operators to help each other just to run the business as efficiently and effectively as we can. The best thing we can possibly do is grow the top line. That's the best way of resolving any of these costs increases and just make sure that we don't pass any of the impact of that in a negative way through to the customers. We still want to just staff the restaurants fully and appropriately so we can offer the experience that customers expect from us.

Our next question is from Nicole Miller Regan with Piper Jaffray.

Thank you. Good morning. I want to ask about driving delivery orders to McDonald's app and where are you at in that process? And how is it going and what are you learning? And I was curious about the economics of it. So clearly there's value in getting the customer data and owning that customer more or less versus the marketplace. But is that more of a value customer in the economics are similar? Or are the economics still superior just because you don't have to pay the fees to the marketplace? Thank you.

Hi, Nicole. So yes we ultimately really want to be able to offer customers two ways of ordering a meal through McDelivery. One would be directly through the third-party operator which is currently how they do. The other opportunity we deal with is integrate it into our global mobile app. We believe we're making good progress. Obviously there's a fair bit of technology work that has to go on to integrate it. And we believe we're going to be in a position where customers in the U.S. will be able to access it through back end of quarter three this year. And as you say part of what's important in that is that whilst protecting all necessary privacy concerns clearly we will be able to gather more customer data to begin to build up a better understanding of customers behaviors. We've kind of sort of segued into part of what we're trying to do with our technology foundation here overall. If you think about a lot of the investment we and our owner/Operators have made the last two or three years whether it's in developing the app self-order kiosk digital menu boards both in-store and drive-thru we're now beginning to be at the earlier stages of connecting that technology ecosystem. And why that's important is it will allow us to better understand our customers and how they choose to experience McDonald's. And that's where introducing Dynamic Yield for example will provide us with a great opportunity to smooth the experience of customers in the drive-thru regardless of whether we know you are not. But certainly as we start to build on this platform customers who choose to actually share their identity with us. We can be even more useful to pulling up their favorites maybe building some form of loyalty and reward for it. So there's a number of different things that we can do that will further not just modernize the experience but personalize the experience for customers. And certainly with McDelivery being something that we can only ever see grow integrating that into our own technology ecosystem is an important move forward. And we're certainly having really healthy and constructive discussions with Uber about how we can get that done and making sure that we still protect the privacy of customers because we know how important that is for people.

Our next question is from Jake Bartlett with SunTrust.

Great. Thanks for taking the question. Steve I'm wondering how the promotions in the first quarter in the U.S. in how they did inform your approach going forward? Looks like the bacon event was successful driving some more premium traffic or driving some check. But you also had his negative traffic and that's something you've wanted to avoid or you talked about avoiding. So going forward is the switch back to the 2 for $5 is that an indication that you want to refocus more on traffic? How much does the success of the bacon event give you confidence in premium innovation for the remainder of the year?

Yeah. Good question Jake. I mean this is the continual balancing act or juggling act that we always had at McDonald's and the U.S. is how no different to any other market in the world. I mean how do you create new news to just continue to be top of mind for customers. However not make it so complex as it starts to be a challenge for our teams in the restaurants and therefore inadvertently impact customers. So what we enjoyed about the success of the activity in the U.S. was it was building upon our core menu. So when you can start to use ingredients we already have in the restaurants on menu items that our crew and manager are very familiar with preparing. It really is a seamless activity and it doesn't mean we're always in the state of that. Because I think new menu news every now and then and you probably read the occasional leak about one or two things we have got planned in the U.S. in the coming months. There will be a new menu news for maybe limited-time offers just to create a bit of a buzz and a bit of excitement. And our regular customers like trying something different every now and then but then typically revert back to what they know and what they like. So we're kind of trying to get that balance right between further simplifying the restaurant operation. Again you probably read a couple of things we're doing to help make it easy for our teams to get things right in the restaurants. We're taking a good look at the overnight menu and whether that was overly complex. And then most of our restaurants were already running somewhat more limited menu overnight. For us formalizing that putting some guardrails around it I think is smart and will benefit our customers that time of the day, but would also look at the premium items we have like the signature Crafted and see whether the additional complexity of preparing and some of the unique SKUs that we have in the kitchens. Is it really worthy of that complexity or can we offer a better experience for customers by plussing up our more core and traditional menu. So it's always a juggling act. Don't think that will ever disappear at McDonald's. We've lived with it for 60 odd years. And certainly every single market we look at around the world does the same thing. It's where I would also just like to speak to some of the facilities we have here which actually helps our teams in the their markets. We have the innovation center here which as you know is effectively a very sophisticated test kitchen where we can run our marketing programs through those kitchens and actually almost do a role-play as to what would happen. At the peak hours given a particular type of customer arrival rate in any market in the world and actually see whether the complexity starts to derail the operation. And I can tell you that facility has never been used as widely and fully as it is now. We've probably got 20, 30 markets that will go through there each and every year to validate that operationally we can cope with the exciting marketing and promotional plans that are being built. So we'll continue to stay close to it. And I just feel good about the conversation in the U.S that A lot of the focus is on running the restaurants and just trying to get better day in day out and more consistent. And I think customers will notice the difference

As we near the top of the hour, we have time for one more question from Greg Francfort with Bank of America Merrill Lynch.

Hey, guys. Thanks for the question. The first one, I think you guys usually give your gap to competitors in the U.S. And I'm curious what that was during the quarter. And then maybe a bigger picture question. One of your biggest competitors is implementing a plant-based product. And from what we hear it's gone pretty well. And I'm curious how you think about plant-based products fitting into McDonald's offerings and whether or not that would be too much complexity to do that? I'm just curious what are your overall thoughts on that sort of sleeve of products and how it fits into McDonald's?

Yeah. I'll cover the comp gap and then I will let Steve talk about the plant-based protein. You know, I think we've made a decision not to keep talking about the comp gap every quarter. We feel really good about our obviously start to the year in our first quarter. Some of the competition's obviously reported their comps already. Others will do so over the next several days. But we'll talk to our performance and let others talk to the overall industry. So we won't be sharing that core. I will tell you it was certainly positive this quarter. So we're not ceasing it or stopping because there was any issue or because it was negative. It was clearly positive this quarter but we just decided not to give that number every quarter going forward.

And on the plant-based question. Yeah our menu teams are clearly paying close attention to it. So when you the key for us is to identify the sustaining consumer trends. So whether if you look at veganism, whether you look at the plant-based protein opportunities what we do have the weigh up and you just mentioned it there is the is there an additional complexity? And if there is that complexity worth it? So we'll stay close to consumer demand. I certainly know our teams are paying close attention and discussing this amongst each other and with some of the options that are out there. So maybe more to come but nothing much to say about it at the moment.

Okay. Thank you Steve and Kevin and thank you everyone for joining our call today. Have a good day.

This concludes the McDonald's Corporation Investor Conference Call.