Chris Stent - Vice President, Investor Relations Steve Easterbrook - President and Chief Executive Officer Kevin Ozan - Chief Financial Officer

Brian Bittner - Oppenheimer Karen Short - Deutsche Bank Andrew Charles - Cowen & Company Joe Buckley - Bank of America Merrill Lynch Keith Siegner - UBS David Palmer - RBC Matt DiFrisco - Guggenheim David Tarantino - Robert W. Baird John Glass - Morgan Stanley Karen Holthouse - Goldman Sachs Sara Senatore - Sanford Bernstein Jeff Bernstein - Barclays Jason West - Credit Suisse John Ivankoe - JPMorgan

Hello and welcome to McDonald’s July 23, 2015 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] I would now like to turn the conference over to Mr. Chris Stent, Vice President of Investor Relations for McDonald’s Corporation. Mr. Stent, you may begin.

Hello, everyone and thank you for joining us. With me on the call are President and Chief Executive Officer, Steve Easterbrook and Chief Financial Officer, Kevin Ozan. Today’s conference call is being webcast live and recorded for replay by phone, webcast and podcast. 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 applies to our comments. Both documents are available on www.investor.mcdonalds.com as our reconciliations of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. And now, I would like to turn it over to Steve.

Thank you, Chris, and good morning everyone. In May, I shared the initial steps we are taking to fundamentally reset McDonald’s business and reassert our leadership. Today, I will share the progress we have made since then. Our turnaround plan represents a significant step change in McDonald’s and establishes the foundation for our transformation as we work toward becoming a modern progressive burger company. Our number one priority is to return critical markets to sustainable growth by regaining customers’ trust and loyalty. These efforts must be led by the markets, local management and franchisees working together to deliver what people want from McDonald’s, great tasting, quality food at a value, delivered with a better service each and every time they visit. Our focus over the last several months has been execution, transformation and challenging the organization to evolve more quickly, taking bold steps to change the way we think and operate starting first with our structure. We made a fundamental shift in a way our business is organized effective July 1 to eliminate redundancies, maximize talent and create a greater sense of urgency amongst companies and operator leadership staff as well as with our suppliers. This restructure arguably represents the biggest organizational change in our history yet from inception to execution we completed it in just two months. It requires significant change inside the company. And we are already realizing some of the benefits, stronger discipline, sharper customer focus, a more acute sense of urgency and a deeper understanding of what legacy thinking and actions to challenge and how. For example, market teams in Australia and Hong Kong have recognized and acted upon the needs of a greater choice in personalization with our hallmark product, burgers. We are aggressively deploying elements of experience in the future and seeing encouraging results. And in Germany, our brand re-launch highlighting new taste and a better overall restaurant experience is giving customers reasons to think differently about McDonald’s. We have also recruited fresh outside perspectives as part of this restructure. Our new Chief Communications Officer, Robert Gibbs and Chief Marketing Officer, Silvia Lagnado, are highly respected talented leaders who will bring a wealth of experience and outside perspective. In the next several months, we are about taking further action and reasserting our leadership. We must operate better restaurants. That’s why we are recommitting to operations excellence, which frankly has been lacking in some markets. Simply speaking, we need to be better at serving hot fresh food, providing fast and friendly service in a contemporary restaurant at the value of McDonald’s. Today, I will highlight the steps we are taking and the progress we have made. While financial results remained disappointing in the second quarter, we are seeing early signs of momentum. Looking ahead to the third quarter, we expect positive global comparable sales led by growth in our newly created international lead market segment and China’s continuing recovery in the 2014 APMEA supplier issue. Before we turn to the U.S., let me briefly highlight the progress we are making in some of our most significant markets around the world. I am energized that the actions our markets are taking and the impact they have on results. As we translate our progress into the context of our new organizational structure, I can say with confidence that the international lead market segments, which represents approximately 40% of our business is moving in the right direction. Australia, Canada and the UK continued to deliver strong performance. Germany is starting to turn and France is gaining share despite the challenging headwinds. This segment will be a strong catalyst for our business. Let’s start with Australia, where June marks 10 consecutive months of positive comparable sales and guest counts. The business has turned in Australia and the market is focused on sustaining positive performance. The combined solutions deployed last year, such as re-launching everyday value with the loose change menu and offering customers Barista crafted McCafé beverages in the drive-through established the foundation and Australia has successfully layered on incremental initiatives to sustain that growth. Value breakfast was introduced early this year and we began national advertising for Create Your Taste customized burgers as part of our efforts to develop the customer experience in the future. The UK also continues to grow, with 37 consecutive quarters of positive comparable sales performance. Multiple initiatives contributed to growth and market share gains across all dayparts. For example, we gave customers more reasons to visit our restaurants by featuring premium products, such as the Chicken Legend and Big Tasty and through effective marketing and promotional efforts, including Monopoly. Strong growth in breakfast was fueled by the market’s first ever promotional breakfast item, the sausage and bacon sandwich. And the team is improving the service experience by aggressively deploying Experience of the Future. 150 restaurants we converted so far and plans were in place to double that number by the end of 2015. Let’s now shift to Canada, where positive comparable sales performance continues. The team is driving growth by focusing on convenience, including the ongoing rollout of dual-lane drive-throughs, which improve the speed of service for customers, particularly during our busiest times. The market is also benefiting from strong breakfast growth building up on a successful free coffee offer earlier this year, along with additional enhancements to the core menu, including new salads. We are also seeing signs of progress in Germany. This was the market’s first quarter of positive comparable sales since the second quarter 2012. Customers are responding to the steps we have taken to improve the taste and variety of core and premium products, such as the new premium bacon clubhouse range and the [world][ph] couture promotion that feature locally sourced and seasonal ingredients. And I am excited to announce today – about the announcements today of our developmental licensee agreements with Autobahn Tank & Rast. This agreement gives us the opportunity to develop more than 100 new sites in fuel and service stations across the lucrative motorway service station network in Germany, with no capital investment required by McDonald’s. The first new restaurants are expected to open this year with the majority opening between 2016 and 2019. Moving to China, one of our high growth markets, recovery continues from last year supplier issue. Comparable sales remained negative in the second quarter at minus 3%. However, the top five cities, which represent about 50% of sales, are leading the recovery effort with flat comparable sales for the quarter. Lower tier cities are not recovering as quickly driven primarily by weaker macroeconomic conditions in those outlying areas. China is strengthening everyday value with a specific focus on the mid-tier price points, continuing to enhance convenience for our customers through delivery and kiosks and elevating the quality perceptions of our burgers by piloting customization through experience of the future. We are on track to return to a normalized level of performance in China for the second half of the year. In fact, prior to the anniversary of last year’s APMEA supplier issue, the market has already returned to positive comparable sales performance in the first part of this month. Let’s now transition to the U.S., which represents over 40% of our business. Results here have been disappointing. We are committed to changing the trajectory of the business and arresting the nearly 3 years of decline. We are working to promote discipline back into the business, adapt more quickly to changing trends, offer more compelling value across the menu, and bringing new energy and tenacity to simply running better restaurants. The localized structure implemented early this year was an important first step. It’s designed to liberate market teams to be more responsive to local consumers and we have seen pockets of success. The Northwest region, for example, was the country’s top performing region in 2014 and continues to generate positive results year-to-date here. A strong restaurant operations culture, coupled with an aggressive promotions like any size soft drink or coffee for a $1 is generating incremental traffic. The Heartland region, which includes Kansas City is also delivering comparable sales and guest count performance above U.S. averages. There, a heavy breakfast focus, coupled with a modernized restaurant base has fueled momentum. And Boston, which is coming back from the worst winter in its history has deployed a combination of regional products like the lobster roll, a $2.99 Happy Meal to attract families and beverage value to drive sales and guest counts. The U.S. is focused on creating a better experience for customers by concentrating on value, service and menu. These are not headline grabbing moves, but they became the return to running better restaurants. So first, getting back to winning on value. Having aligned with our franchisees on the need for national price pointed value platform, we are now making adjustments to our current offer for the rest of the summer. This includes better marketing support and stronger coordination with local messages. We are also evaluating options for longer-term national value platform. Next, we are enhancing the customer service experience. This starts with the basics. We have reduced the number of menu items in restaurants to make it easier for teams to deliver better service. We are improving the speed of our drive-throughs with simplified menu boards. We have cut the number of items displayed by about a third, yet still highlight the items to deliver 80% or more of drive-through sales. We are addressing order accuracy with new operational procedures and training programs already in almost half of our restaurants. And we are increasing the number of dual line drive-through to deliver faster service to our customers during the busiest times of the day. I will be launching our mobile app in the U.S. in the third quarter. This is part of our global digital strategy that over time is designed to streamline and improve the entire customer service experience. The initial version of the app will make it easy for consumers to receive value when they choose McDonald’s through features like tail adopters that are easy to redeem and rewards for regular purchases of their favorite McCafé beverages. And at the same time, the team is already hard at work, developing additional features to hasten the shift from mass communication to personal one-to-one engagement with customers in the future. And finally menu, this starts with our call products that define our brands. We have implemented new cooking methods in our restaurant, so we are seeing strong growth changing how we sear and grill our beef to deliver hotter, juicier sandwiches. And we are looking to further improve performance during our most successful dayparts. For example, our all-day breakfast trials have gone well, so we have expanded those tests to better gauge customer response. I believe we are making the right moves to begin to stabilize the U.S. business. But there is no silver bullet. No one move will turn a business that’s been in decline for nearly 3 years and more recovery will be bumpy on comfortably moving in the right direction. While our primary focus is on actions that will drive operating growth, we have also taken steps to unlock financial value. On May 4, we identified key areas of focus to unlock that financial value. In just two months, we have made good progress towards all our targets including G&A, refranchising and cash return. Kevin will provide more details specific to those in a moment. In closing, I remain confident in the power of our brand and our network of franchisees, employees and suppliers to capitalize on the growth opportunities before us. It’s not enough to say that we want to be a modern progressive burger company consumers need to see us that way. Shifting deep-seated perceptions the longer term proposition, it requires us to move across negative barriers and embrace behaviors of a true global leader. We have made significant progress in a short amount of time. And I am confident the changes we are making are the right ones will position us to grow the business profitably for our system and our shareholders for the long-term. Thank you. And I will now turn over to Kevin.

Thanks, Steve, and hello everyone. I would like to begin by discussing the factors that impacted our second quarter performance. Then I will review some key components of our full year outlook and provide an update on the financial elements of our turnaround plan. Let’s begin by reviewing the major drivers of our second quarter results. Our overall financial performance continues to be largely reflective of our top line results. For the second quarter, comparable sales were down 0.7% reflecting negative guest traffic across all of our geographic segments, with the largest impact coming from the U.S. and Japan. For perspective, operating income for the quarter totaled $1.8 billion, down $127 million or 6% in constant currency. The U.S. and Japan accounted for over 80% of the quarter’s overall operating income decline. With more than 80% of our global restaurants franchised, the largest driver of operating income continues to be our franchise margins, which totaled $1.8 billion, a 2% increase in constant currencies. The growth in franchise margins was driven primarily by restaurant expansion in Europe and strong comparable sales in Australia. Global company operating margin dollars declined 8% in constant currencies to $665 million for the quarter, reflecting weakness across our major geographic segments. The U.S., Russia and China accounted for substantially all of the margin declines for the quarter. Second quarter cost pressures were relatively consistent with our expectations. In the U.S., labor costs increased primarily due to planned minimum wage increases in several states and commodity costs rose approximately 1% primarily due to higher beef prices. Effective July 1, U.S. company operating margins will also reflect our decisions to raise wages and provide paid time-off for employees at our company operated restaurants, along with providing educational assistance for all our restaurant employees. We expect the total impact from these incremental labor costs to be approximately 200 basis points on U.S. company-operated margins for the full year, further pressuring margins for the second half of 2015. To help offset cost pressures throughout our P&L and remain in line with food inflation, we took a price increase at the end of May. Our U.S. second quarter pricing year-over-year was up over 2%, which remains below food-away-from-home inflation of around 3%. The current projected increase in the food-away-from-home inflation for the full year remains at 2% to 3%. Excluding currency, Europe’s commodity costs were up about 2% in the second quarter. Our price increases in Europe vary by markets with the overall segment excluding Russia averaging about 1.5% year-over-year. For the quarter, we also recorded nearly $50 million of other operating expense, primarily due to $45 million of severance charges in connection with the restructuring of our global operations. About half of these charges were incurred within our corporate functions and the other half in Europe and APMEA as we move to a flatter, more nimble organizational structure. Moving down the P&L, it’s worth noting our second quarter effective tax rate of 29.8%, which was helped by lower tax costs associated with the company’s ongoing foreign cash repatriation. We continue to expect the full year tax rate to be at the high end of our existing 31% to 33% range. Earnings per share for the quarter was $1.26, which included a significant negative impact of $0.13 from foreign currency. Looking beyond the second quarter, currency translation is expected to be a headwind throughout 2015 as the U.S. dollar remained strong against nearly all of the world other major currencies. At these levels, we now expect foreign currency translation to negatively impact our results by $0.14 to $0.16 in the third quarter and about $0.45 for the full year. As usual, take that as directional guidance only, because rates will change as we move throughout the year. Let me switch gears now for an update on the financial elements of our turnaround plan. In May, we announced our intent to accelerate our cash return to shareholders in 2015. During the second quarter, we returned $2.5 billion through dividends and share repurchases. This brings our total cash return to shareholders through June to $3.9 billion and we remain on track to meet our target of $8 billion to $9 billion for the full year. During the quarter, we took advantage of favorable interest rates and increased overall debt by issuing $4.3 billion of U.S. dollar and euro-denominated medium-term notes, with an average tenure of over 10 years and an average interest rate of just over 2%. Our overall philosophy on use of cash has not changed. Our first priority is to reinvest in our business to drive future growth. After that, we expect to return all of our free cash flow over the long-term to investors through a combination of dividends and share repurchases. As we execute the initial steps of our turnaround plan, we are actively evaluating our capital allocation decisions, including our dividend as part of our broader strategic planning process. As a result, we are targeting our annual dividend announcement in November this year, a slight change in timing from our typical September update. One of the key areas of focus for the turnaround is better leveraging our business model, including the benefits of franchising. In conjunction with our goal to re-franchise about 3,500 restaurants by the end of 2018 and increase the global franchise percentage to about 90%, we are already moving forward in several markets, including Taiwan, where we recently announced our intent to pursue a developmental licensee structure. Taiwan is a well-established market, with more than 400 restaurants, the vast majority of which are company-operated. While we are in the early stages of the process, the conversion of this market to a developmental license will mark a meaningful step towards our overall refranchising goals. The structural changes to our organization and our ownership mix not only better position us for future growth they will also deliver savings to our bottom line. Earlier this month, we made important changes in our corporate and segment support teams, which included the elimination of some international and home office positions. While these types of changes are never easy, they were right for the business and will result in a leaner, more agile organization that can better respond to market conditions, and most importantly, our customers. The rapid execution of these resourcing decisions is an example of our sense of urgency to reset our business and changes the trajectory of our financial performance. When we shared the initial details of our turnaround plan in May, we established a target to achieve $300 million of net annual G&A savings. We expect to achieve about half of those overall savings by the end of next year with the remainder realized by the end of 2017. Our planned refranchising activity is contributing towards these G&A savings due to the less resource-intensive support structure inherent in a more heavily franchised model. Importantly, we are not stopping there. We are moving to the next phase of our analysis relative to each of the financial areas of opportunity, including ownership strategies, asset optimization and overall spending. We plan to provide an update on all of these areas at the November Investor Meeting. The July 1 reorganization of our business into the new segment structure is an important first step in our global turnaround. In conjunction with these changes, we will be providing recapped financial information that reflects results under this new structure. We expect to furnish our recapped summary financial information toward the end of third quarter for the years 2010 through 2014. Quarterly details will be provided for 2014 and year-to-date June 2015. In closing, let me reiterate that we are fundamentally shifting the way we operate and approach our business to get back in step with consumers. McDonald’s success has always been fueled by outstanding operations, compelling marketing and great tasting food. We operate under a unique business model that benefits from a highly collaborative relationship among the company, independent franchisees and third-party suppliers, all who take pride in their businesses. We need all of these elements working together to provide a world-class experience that makes our customers feel welcome and valued. Our turnaround plan is designed to fortify these fundamental cornerstones of our business. And our operational growth led turnaround will also be supported by a comprehensive approach to financial management that’s focused on driving value for our system and our shareholders today and into the future. Thanks. And now I will turn it over to Chris to begin our Q&A. A - Chris Stent: Thanks, Kevin. We will now open the call for analyst and investor questions. [Operator Instructions] The first question is from Brian Bittner of Oppenheimer.

Thank you very much. Good morning. Question here, Steve, you talked about the early signs of momentum now with the second quarter results behind you. You pointed to the fact that you expect positive comparable sales on a global basis in the third quarter. How much of this improvement you are seeing is really the comparison in the Eastern Asia and the better trends in Europe versus any core improvements that you are now seeing since the second quarter in the U.S. sales trend if any? And I do have a follow-up on that if you don’t mind.

Sure. So, first of all, one important context to put within my comments about it being a positive global comparable sales quarter even without the impact and the bounce back from the supplier issue in APMEA, we will be projecting a positive quarter. So, there is strength in the underlying like-for-like sales growth independent of that. Now, that bounce back further supports it. We are seeing it more across the international lead markets, which isn’t just Europe. We are seeing that connected group of France, Germany, UK, Canada and Australia, are gathering momentum as a collective group, which is great. The U.S., what we are working hard to do is minimize – and currently, the U.S. is a little bit of a drag. We are looking just to narrow that gap and return that business to growth, but we are not putting in anything significant for growth at all in the third quarter, but we are working hard towards getting it by the end of the year.

Okay. And am I still with you?

Yes.

Yes.

Just to follow-up on that, obviously, value, service and menu are the headline drivers for the U.S. going forward and obviously a lot of moving pieces underneath that hood, but I just want to ask on the value piece. What is – you talked about a longer term national value platform that you are thinking about, what are you thinking about in terms of that? Any color you can put on that? And maybe when we could really see it be implemented?

Yes, that’s right. And as you know, the owner/operators and the management team came together and recognized the need for a national value offer across this summer. I think that’s further emphasized and cemented on their minds, but the idea of national value going forward is a positive thing. The $2.50 deal is not the answer, but they are certainly being helpful in this immediate term. And therefore the owner/operator group have already tasked themselves actually to come out with something they feel would be strong right across the country to benefit everyone’s business, whether it’s the Northeast or the Southwest and we’ll share more news when it comes, but it won’t be in the immediate term, but it will fill an important role for us certainly as we look through 2016.

Next question is from Karen Short of Deutsche Bank.

Hi. I guess just following on that question. I mean, obviously, we know you rolled out the $2.50 value meal in mid-June and obviously the simplified drive-through menu was fully implemented by early July. So, I guess I am wondering they obviously wouldn’t have any impact on the second quarter results, but any color you can give on how both of them are benefiting July or maybe just talk a little bit about the success or what your thoughts are?

Yes. Well, certainly both of those decisions that have been taken have helped our business. It took us a little bit of time to execute the $2.50 as well as we wanted, because having rolled that out, it begun to conflict a little bit with a lot of energy in the regions, because the regions were taking upon themselves to drive value on a local level. So, we spend a little bit of time for first two or three weeks just tidying that up, getting our execution better in the restaurants and our marketing execution support for it, and we expect a greater contribution through the rest of the summer; for the drive-through menu boards unequivocally positive from a consumer perspective and also for the restaurant – the team to deliver better service. So, again, neither of them are going to be seismic changes to the trajectory of our business. They are both positive moves and we are working hard in executing them both and they will certainly both contribute to rebuilding some momentum through quarter three.

Next question is from Andrew Charles of Cowen & Company.

Great, thank you. The Australian turnaround was a few steps ahead of the U.S. with a similar playbook between the two markets. Can you help us size up the difference between the two starting points, with the sales weakness in Australia as prolonged and as extreme that the U.S. currently is? And then I have a follow-up on that as well.

I would say, by and large, it wasn’t far off yet. What we have seen in turnarounds in all of our markets, whenever we face a turnaround situation, we’ve slightly taken our eye off the ball. The competition has moved little quicker than we have. We have lost the value foothold that’s so important to our business and we haven’t created compelling energetic plans with our operators in a way that we like to do when we have gone full throttle. So, the similarities heading into the turnaround were somewhat similar. What I would call out Australia for, and incredible credit to the team and the owner/operators there, is the pace with which they’ve moved once they have galvanized themselves to get around big initiatives. They have gone for a small number of big moves and they have gone quickly and they have gone together and that’s created visible change in the restaurants, visible benefits to consumers and the traction is very, very encouraging. And by the way, with the new structure we have, with effectively six global major markets, our ability to transfer that knowledge from market to market is that much quicker. So, I know Mike Andres and the team and the owner/operators in the U.S. are very familiar with the Australia story, with the UK turnaround story, with what the German team have been doing and they [indiscernible] and adapted to local market.

Next question is from Joe Buckley, Bank of America Merrill Lynch.

Thank you. I have two questions in different directions. First, Steve or Kevin, as you are reviewing the next phase of the financial moves that you have made and plan to update us at the November meeting, does the real estate factor into that? Is that part of that analysis and part of what you might address one way or the other in November?

Yes, Joe, it’s Kevin. We are looking at everything, I would say, kind of the three components I’ve talked about, the ownership strategy, [indiscernible] optimization and cost structures. We are kind of going through deeper analyses of each of those and so you should expect to hear an update on all those components in November.

Next question is from Keith Siegner of UBS.

Thanks. Steve, you talked about again value service in menu and when you talked about menu, you mentioned all-day breakfast and the tests that are continuing there. But when we look across the landscape of QSRs, there is a lot of new product news, really buzzy interesting stuff, not always operationally complex, but just good new product news. And that really wasn’t a part of the conversation today when you are going through the menu piece. How do we think about new product innovation at the regionalized level? Can you give us an update on that, please? Thanks.

Yes, it’s a really good question, Keith. The only thing I am most excited about with regards to the, if you like, the new menu news is the fact that the energy is going into revitalizing our core menu and that should not be lost. I mean, when we sit here and assess how can you make the biggest difference to the most customers in the shortest space of time improving our core menu and our delivery of the core menu is clearly the way to go. So, I don’t want to lose sight of the fact that toasting of buns, better searing of beef, taking care of the dressings and the packaging and the rest of it, that gets noticed by customers. With regards to, if you like, new product development, I would say, at a national level, we will be looking at, if you like quality over quantity. It’s not about having lots of national LTOs, because that does complicate the business. It gets confusing to message right. So, we would be looking at fewer higher impact items going out and our team with Chef Dan and his team are working hard on that. And then you will also see the localized options. I called out lobster roll in Boston, for example, that could be much more nimble shorter-term relevant to the local consumer demographic in taste and flavors. And I think you will see there two levels. There will be not a frenzied activity. It will be a calm, measured and higher impact with fewer items national and then locally there will be some energy on a local basis. But don’t miss out – honestly, don’t miss out the benefit of continually improving our core menu as well.

Next question from David Palmer of RBC.

Thanks. I was just wondering if you could dig into reasons, examples why you are excited about international lead markets accelerating into the second half. Are there specific examples of countries that are picking up momentum or platform innovation that you are excited about, like for instance I think you were talking about Australia being one of the early ones to go out create your taste, but more texture the better as far as what you are seeing in these markets? Thanks.

Yes, I think it’s a great question. As you look at the five lead markets, first of all, really strong local management teams and strong alignment of the operators is a consistency across all five. That is a fantastic foundation, but there were peculiarities and merits amongst each and every one of them. If you go to France, the advancements they have made with technology, for example, on how they have totally reappraised the customer journey is fantastic to see. So, let me be specific. They now have self order chaos in all of their restaurants. They are taking upward of 40% of the transactions through the busy hours through the self order kiosks. And the reason that’s exciting is probably three reasons I guess. One, for the first time, we give customers a choice and they just welcome choice. Two, it takes on the stress away from the front counter and therefore you divide some of the pressure, some of the load during the busiest times. And three, from a commercial perspective, we see higher average checks because customers spend little time ordering. They can browse the menu for a little bit longer, feel a little less pressure and they just tend to spend more. So we are getting a lot of learns from that. If you go to Germany, for example, which is earlier stages of a turnaround, the brand has got its mojo back. And when you do that, you start to attract attention for the right reasons. The new agreement we have just reached development license agreement with Tank & Rast is a fantastic agreement for us, because if anyone knows the travel infrastructure, transport infrastructure in Germany, you will know that autobahns play a huge role. That’s helping people typically get from city to city. And therefore, to have roadside presence in up to 100 sites effectively to no capital from our perspective that’s what happens when a brand in a market gets its mojo back. You start to attract this sort of partners we want to be doing business with. Australia, are progressing – basically they have become our lead market in what we call Create Your Taste. Now all of our markets are building out the broader umbrella, which is a good experience in the future. Many components to that, there is technology, there is visual menu boards, there is new service procedures, there are self-order kiosks and customizable personalization of food. The Create Your Taste group that the Australian team have gone down, they rolled out market wide in a little over six months or seven months to a level where they can now nationally advertise it. We are going to learn a lot of how that works, it’s an in-store solution currently, can we drive traffic in-store, can we increase dwell time, can we – is the table service that goes along with that matter to customers and our ability and our visibility for market to market on each of these initiatives. I believe that’s when McDonald’s is at its best when we have test sales actively pushing the boundaries. And when something works we can then transport it from market to market at pace. And again I don’t want to minimize the number of things the U.S. team are working on. I mean the U.S. is our lead market for the mobile app. Now, we have recognized we are a little behind some others where there is enough second seller in broader retail, but let me put on line two things. We are one of the best execution companies in the world. The U.S. will start with an app with fairly modest capabilities, but the infrastructure is built, so we can add to it and transfer it from market to market at pace. So that is where I guess my energy and my confidence comes from is that kind of connective momentum and you start to spur each other on.

Next question is from Matt DiFrisco of Guggenheim.

Thank you. Question is a little bit more on a modeling question with respect to an update on your outlook for refranchising and selling the company-owned stores. I was wondering what are the early indications or site lines that you might have with respect to what type of EBITDA impact it might have? As we look out sort of 2 years from now, how much EBITDA are you basically taking off of your bookstore? Is it pretty much a good substitute where we suspect that the storage you are selling could garner a similar rent in royalty structure than the existing 82% of your worldwide base of franchisees?

Yes, hey, Matt. Let me talk real quickly about the refranchising. As you know, there is a lot of kind of different things that go into that. So, the strategy and timing will probably vary across our different segments and even within markets. Some markets will be completely franchised or converted to a developmental license, while others will just have more conventional franchising. So, it’s difficult to estimate exact timing or exact financial implications of each of those. As you can imagine, these are long-term decisions that we are making generally for at least 20 years or so with right licensees and operators. So, it’s important we get this right and we will see G&A and capital as we do this. We will certainly get a little bit more stable revenue stream. On an EBITDA basis, it would be difficult to generalize on what that means in total for the company, because it’s going to be pretty lumpy over the next couple of years as we have specific transactions getting there.

Next question is from David Tarantino with Robert W. Baird.

Hi, good morning. Steve, I have a question about the U.S. business and the overall strategy there. I think one of the key pillars of your turnaround strategy was to get more focused and reduce some of the complexity and improve business at the core. And I think you are going to reference that earlier in the call here. But at the same time, we are seeing messages about all-day breakfast and things that sound fairly complex. So, could you help reconcile that with the overall strategy? It seems like there is complexity being added in some places when you are thinking about reducing complexity in others.

No, it’s a perfect question, David. And I’d love to address that. So, as we explore different initiatives to drive the business, clearly, all-day breakfast is one of those. So, initially, the owner/operator group, they took a fairly pioneering approach out in San Diego and actually I was fortunate I went down to visit them just two or three weeks ago and spent time with the operator in their restaurants understanding what it really meant. So, we are trying to prove out and proving out the consumer business base, consumer demand for all-day breakfast. But to your point, you can’t talk simplification and add to the meantime. What we work on is, are there multiple ways to reduce complexity and streamline the job for our personal managers, enable them to be able to accommodate this. So, what we want to do – and people say why can’t you move faster with all-day breakfast, for example? There were a number of moving parts to this. So, what we are going to need to do is, a) prove out that the consumer-facing business case, but also come up with how a low tracking work, such as the net impact is net simplification. Adding one thing and taking one thing off is not simplification. So, what we want to do is simplify the operation in sufficient other ways, but even if we were to go with an all-day breakfast that the net impact on the restaurants is one of simplification. So, let me give you some ideas around that and what that really means. Some of that is around simplifying the menu, go deeper into some of the rationalization [indiscernible] things off. There is way other ways of doing it than just the menu, operational procedures. We have a team with operators and some of our exposed in our national operations team here in the U.S. looking at other procedures that we can simplify in the restaurant whether it’s the way we assemble menu items when we work, whether it’s the way we have the packaging laid out, whether it’s the way we use technology to be able to get orders to the back of the kitchen just to take out steps and workloads, but we also have ideas just around entire process of how do we reduce the amount of noise, when intended noise that goes into a restaurant that managers have to deal with on service and facing the customers. So, when you put all those work streams together and if we were to build a compelling business case, if we were to believe all-day breakfast is sufficient sales driver that is worth making other complementary changes on simplification. The net-net has to be simplification and it will only be up on that basis that we would be moving forward.

Next question is from John Glass of Morgan Stanley.

Thanks very much. Kevin, I am just trying to understand this, imagine the scenario as you would cause you to reevaluate the dividend policy in some way, either there maybe a negative scenario under which you would look at the payout ratio and say it’s getting too high and you need to bring that back into line or perhaps just like a positive scenario where you are thinking about the different cash flows to support that dividend that maybe dividing those up on different entities. Can you at least provide us some direction in what way you are thinking about it? Is it a positive event, a negative event? Because I think it’s so important and critical to the investor base of your stock.

Yes, John. As we think about all these financial areas, so the refranchising, looking at G&A, the ownership structures and kind of our whole strategic planning process that includes capital and how much capital we will be spending in the future etcetera, all of these things become pretty interconnected as you can imagine. So, our thought was we need to examine the right view on all of these things together and talk about them in total as kind of the whole picture. And so we will have that whole picture for everyone in November as we go through our strategic planning process, get a better view into capital and have a better view on all these other financial areas also.

But I will just to add to that, John, as well. When we were a little bit of a pivot point in the global, where we believe we were seeing some early stages of momentum. And if we were just to have an extra couple of months of trading under our belts as well that would also just give us another variable to put inside the equation as well. So, it’s important of us. We are paying very acute attention to our trading performance momentum market by market, particularly those major markets. And again, they all contribute to the underlying assumptions that help us make the right decisions for the business and for the shareholders.

Next question is from Karen Holthouse of Goldman Sachs.

Hi, thank you for taking the question. If you look at regions that have seen called earlier signs of momentum and are now momentum that you are building on whether it’s UK, Australia, when you look at consumer metrics that were leading indicators of that, what were the ones that were most closely tied to the sales accelerating? And where do you see those metrics in the U.S. today?

I hope I am answering your question the right way, Karen. What we have done since the structure has been implemented is really identify rather than trying to have generic U.S. wide consumer metrics is to few of the regions with that type of information and insight for them to make sharper decision. So, in some areas, there was a stronger economic recovery than others. In others, the competition is different. And in terms of the dynamics and demographics are different. So, what we have been doing and the markets where we are seeing the greater success are those that are using those consumer insights and responding quickest to the needs of consumers and what else is happening in the marketplace. And typically, they have taken one or two bolder moves. They have put themselves out there and they have decided to take a bit of a charge and take some risks and show the way. And then we will be transferring some of those learns from region to region over time. I would say probably some of the characteristics of the leading regions at the moment are those who are using whether it’s disposable income metrics, unemployment metrics, value for money metrics, their assessment of our day-to-day operations and are responding to those and are building plans to address the things that matter most to customers.

Next question is from Sara Senatore of Sanford Bernstein.

Thank you. I wanted to ask about the labor investment, if you will, that you are making in the U.S. I think that’s something we have heard from a lot of companies. Certainly, it seems like the competition for labor has stepped up a little in addition to some of the regulatory changes, whether it’s $15 minimum wage in some municipalities or over time requirements that go into effect. I guess, first I wanted to get a sense of whether what you are doing now is meant to preempt some of these actual legal regulations. And also, what is the implication for your franchisees, which is a second part of that is broader, how are the franchisees profitability, economics and your relationship with them, so if you can just talk about labor costs in the outlook and then also maybe give us an update on franchisee economics and where they stand with respect to some of the initiatives that you are taking on that side?

Okay. So I will talk, let me begin and I will talk about some of the labor challenges and economics. And then I will let Steve just talk about kind of labor or franchisee relations in general. As you talk about Sarah, there are certainly labor pressures around the world from a wage standpoint. I don’t know that we think of it as kind of an undue pressure anything that’s going to harm our business. But certainly, labor costs on a pressure right now. In several states, as you know minimum wage has increased. For us, margin is essentially our top line gain. So we need to grow sales. Certainly, we need to grow comp sales in order to grow our margins. And the specific labor moves that we have taken are what we believe we should be doing as a business to make sure that we attract, recruit and retain the best employees we can for our business. And so we are doing that as long as in our mind as long as the playing field is level across industry, we believe we can compete competitively in the long run. And so our hope is that any of the regulations or a law comes through deal with all of the industries similarly. And then we will all have to deal with the same concerns.

With regards to the franchisees, I mean understandably they are concerned, I mean as independent business men and women. They are facing cost headwinds anyway, which is just the nature of doing business in an inflationary environment, but when there is way above inflation for instance on wages, then that fairly concerns them. I mean that certainly impacts their confidence and winning this to invest over the long-term if there is that sort of degree of uncertainty. That said and done, over our 60-year history, we had surges in costs before. We tend to go back and realize that all what we have to do is it’s a top line gain. So we face them to the reality. We play the [indiscernible] the franchisees who work with management and it just will force us to drive tougher plans, harder plans, more meaningful plans and drive the top line and get that carried down to help mitigate what are some above inflation headwinds for us. But they are certainly anxious about it, totally understandably it’s an open conversation that we have with them, and we just use that concern to drive – fuel some energy around growing compelling plans and just turning into a positive for us.

Next question is from Jeff Bernstein of Barclays.

Great. Thank you very much. Actually just following on the U.S. focus, I have just a two part question. One, I am just hoping you could – maybe rank order in the U.S., the categories or dayparts or products in terms of what you think is the greatest driver of the recent U.S. market share loss. It would seem like that’s the goal here we are doing more of your regional attack versus more national. I am wondering if you could prioritize where you are seeing your greatest weakness versus perhaps the most resilient. And then the other part was just could you just clarify – follow-up that earlier question in terms of the franchisees, just wondering whether it seems like we are hearing more about more challenging relationship, I am just wondering whether there is any actions being considered to help support the franchisees during the difficult period, whatever that might mean or whatever form that might take?

Absolutely. Thanks, Jeff. So in terms of last daypart, if you look at our product mix and where we have seen a loss in the competitive gap open up is we have lost of the value end of our menu. So breakfast remains very resilient. So it’s really through the daytime daypart where we have seen that gap open up over the last probably 12 to 18 to 24 months. Really as we moved away from Dollar Menu, we can replace it with upwards of an equivalent former value and customers are bothered with that fee. The teams have recognized that and that’s why we put the summer value driver in place, and are working on a longer-term ongoing platform. In terms of relations, the owner/operator is an incredibly resilient group and they are fantastic to work with. We have very open conversations with them. I know Mike Andres and his leadership team in the U.S. and the owner operator leadership team is spending more time together than ever, which is what you do to as you start to rebuild the business plans and drive some growth. One thing that’s – and I have had the opportunity and the fortune to spend some time with them as well. One thing that I have absolutely wanted to make sure is really clear an evidence of that is we will be willing to support the owner operators as they and the U.S. management team build compelling growth plans. Now, this isn’t about underpinning cost implications. This is if you would grow and invest in your businesses, we will do what we have always done. We will co-invest with them for growth and that remains as true, if not more true today than ever has done. And as they do those plans out and they finalize, a lot of these tests of inflation environment, I look forward to kind of investing with them. It will be a great opportunity for us and it would demonstrate our support to them. And that gives the owner operators a huge amount of confidence. But we are here shoulder to shoulder with them and they are recognizing that. We are building some exciting plans.

Next question is from Jason West of Credit Suisse.

Yes, thanks. Just I guess following up on that thought, Steve. Just can you talk about as you are trying to turn around the U.S. business and comparing it to some of the successes we are starting to see in other markets, do you feel like this system needs some capital investments in the stores, whether it’s equipment or menu board or things like that to really to get this turnaround moving or do you think we can do it without significant capital investments?

The initiatives we are working on and Mike and the owner operators who work on environment are ones where I would say there is relatively modest investment need. It’s not the same as rebuilding restaurants or dramatic refurbishments. I mean there are some of our restaurants that do look tide and independently one by one, the owner operators will make that decision for themselves. And we will support them on an individual basis. If we are looking at system wide initiatives, we have recognized it’s an affordable investment level. It may involve some technology investments. It may involve some minor part equipment investments and those are sorts of things we will be co-investing with them, because a lot of investments have already been made in the restaurant. They have invested well and we believe the growth initiatives in this short to medium-term are certainly not going to be of the order of one or two initiatives in the past.

We have time for one more question from John Ivankoe of JPMorgan.

The question is on the U.S. once again. Just thinking about the drive-through menu redesign, where I think a third of the menu items came off, why not go further and really highlight that 20% or whatever it is on the menu that has the most turn to presumably increase throughput. And I asked this and kind of a broader question is do you think the U.S. is in a position from a brand perspective or a customer perspective where the in-store brand experience and the drive-through brand experience can actually be split up. And clearly, I am asking a leading question regarding the potential success of Create Your Taste in the United States as presumably you are seeing some signs of in Australia?

So, can we go further on the drive-through menu board in terms of price, I think the answer is yes. And as we are exploring other platforms of growth new items introduced, I think you will see us go a little bit deeper in terms of menu rationalization. Whether that’s just taking off the menu board and the merchandising or actually taken out off the menu entirety, I think you will see a bit of both actually. So I think there is further to go, and now team are looking at that as we speak. In terms of the drive-through versus in-store, I think the important piece is less Create Your Taste element and having that type in-store is more where you place technology to offer a better experience to the customer. So if you are going to introduce self order kiosks, clearly that’s going to create a very good environment in store. You don’t really have a cell phone or kiosk for drive-through, but you may get order ahead. You may got to use the app and some of the technology that we can introduce to that, but they would order ahead, get geo-location, get recognized in the drive-through lane, rise their order off to the back of the kitchen before they even have to place the order. So, I think technology will be a differentiator to give us different service models, but it will still be a McDonald’s. They will still enjoy the McDonald’s experience, but just in different ways. I think technology is the differentiator rather than a different two-tier strategy.

We are near the top of the hour, so I will turn it over to Steve who has a few closing comments.

Okay, thank you, Chris and again thanks to everyone for joining us this morning.