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

Joe Buckley - Bank of America Merrill Lynch Andy Barish - Jefferies Billy Sherrill - Stephens David Palmer - RBC Capital Markets Matt DiFrisco - Guggenheim Jake Bartlett - SunTrust Sara Senatore - Bernstein Karen Holthouse - Goldman Sachs Nicole Miller Regan - Piper Jaffray Brian Bittner - Oppenheimer Karen Short - Deutsche Bank Keith Siegner - UBS David Tarantino - Robert W. Baird John Glass - Morgan Stanley Jeff Farmer - Wells Fargo Howard Penney - Hedgeye Andrew Charles - Cowen Jeff Bernstein - Barclays

Hello, and welcome to McDonald’s October 22, 2015 Investors 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 from 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 webcast. 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. Last month, we provided unaudited summary financial information and historical segment data consistent with the company’s new structure. The updated annual information was provided for 2010 through 2014. Quarterly details were also provided for 2014 through June 2015. Specific questions related to this summary financial information and historical segment data will be addressed by the Investor Relations team through a frequently asked questions document that will be distributed on October 30. Given the very limited number of questions received, we are no longer planning to host a separate conference call to discuss this information. And now, I would like to turn it over to Steve.

Thank you, Chris. Good morning, everyone. It’s been 8 months since I stepped into the position of CEO. Since then, we have made meaningful progress to fuel our turnarounds and begin repositioning McDonald’s as a modern progressive burger company. Our turnaround is operationally led. It’s grounded in running great restaurants, which is the first step to enhancing the customer experience. People have more choices than ever about where to dine. We want to give them more reasons to dine in McDonald’s by recommitting to hot fresh food, cost friendly service, contemporary restaurant experience, all at the value of McDonald’s. Our number one priority is to return critical markets to sustainable revenue and income growth. To do so, we must be customer centric in our planning and our decision-making. We must have the best talent in the most critical positions. And our system must be aligned around the actions we are taking to consistently run great restaurants. And we must execute initiatives that ultimately enhance our appeal in the areas that matter most to consumers, to great tasting, high quality food, convenience and value. Whilst we are still in the early phases, our turnaround plan is working. Customers are beginning to respond to the actions we are taking and this progress is reflected in our third quarter results. As we have discussed previously, the U.S. and international lead market segments generate over 80% of global operating income. For third quarter, five of our six most significant markets drove positive comparable sales growth with France’s comparable sales being marginally negative. We also grew consolidated margins, operating income and earnings per share on a constant currency basis. These results do, in part, reflect the benefits from comparisons to the 2014 China supplier issue and the prior year’s increasing tax reserves. However, operating results for the quarter were still up modestly when you exclude these items and take into consideration the significant currency headwinds. Looking ahead, as we begin fourth quarter, global comparable sales are expected to be positive in all segments. Every market face a significant role in our global turnaround. Some markets like Canada, Australia and the UK are further along. They continue to deliver strong, sustained growth. That said, all markets have adjusted how they think and how they operate to ensure their actions and decisions are grounded in satisfying customers in their local markets today and for the long-term. The U.S. business remains front and center given its fundamental importance to overall consolidated results. Its shift to positive comparable sales in the third quarter, the first quarterly comparable sales increase in the U.S. in two years is a tangible sign of the progress and reflects the initial steps we have taken in areas that matter most to our customers: great tasting, high quality food, convenience and value. In the area of food, we have made progress toward enhancing the taste of our products and improving consumer perceptions of quality. Our core classics define the McDonald’s brand. That’s why we’ve enhanced operational procedures. We are toasting buns longer, changing how we sear and grill burger patties to bring out the best in our menu and serve hotter, juicier sandwiches to our customers. We transition back to the original recipe for our Egg McMuffin, using butter instead of margarine to deliver an even tastier sandwich. Customers appreciated the change and we saw a double-digit increase in the number of Egg McMuffins sold immediately following the rollout. In August, we introduced the buttermilk chicken sandwich made with 100% chicken breast meat and real buttermilk. This new product complements our ongoing core menu emphasis and customers have responded favorably. Initial results have exceeded the high end of our expectations. And at the start of the fourth quarter, we rolled out all-day breakfast across the U.S. Customers have been asking for this for years and we’ve challenged ourselves to move past legacy barriers to deliver and we did. Our ability to move from one market in May to all 14,000 restaurants, speaks to the commitment and alignment of franchisees and our entire system have been customer led in our decisions and our actions. We have also taken action to enhance our convenience and the overall customer experience. Early this year, we implemented operational procedures designed to improve order accuracy, remove some items in the menu and simplified the drive-through menu boards. Our goal is net simplification. We have established screens to evaluate operational complexity versus the expected impact on the customer and the business. And ultimately, we want to focus our efforts on fewer, bigger decisions that generate bigger rewards. We also took a first step toward enhancing the customer experience digitally with the deployment of the mobile application. To-date, there have been over 2 million downloads of the app and 1.5 million offers redeemed. We will begin national advertising later this month. Now, from a value standpoint, we are aligned lined with franchisees on the need for national value. The summer $2.50 Double Cheeseburger and Small Fry promotion was the first step. And we remain committed with operators in working towards restoring more permanent national value platforms in the future. Customers are noticing the differences. Our customer feedback system, which now tracks approximately 10 million customer touch points each year, reflects consistent improvement in customer feedback scores. We are seeing this across all key categories measured, with the most significant improvement seen in the areas we focused on namely, food quality, friendly and fast service and order accuracy. Let’s now turn to the international lead markets segment starting with Australia. Third quarter marks four consecutive quarters of comparable sales and guest counts in Australia. The market turnaround began last year as the customers responded to the combined initiatives that collectively improved our overall experience. This included a renewed focus on improving operations, the added convenience of offering Barista crafted McCafé beverages through the drive-through and the stronger value platform with the re-launch of the Loose Change menu. This year, we have been giving customers even more reasons to visit our restaurants with the rollout of a new Value Menu of breakfast and through effective marketing and promotional efforts, including monopoly. National advertising of the Experience the Future, which includes self-order kiosks, digital menu boards, table service, and burger customization through Create Your Taste began July 1. While early, we are encouraged with the initial results and the positive buzz we have created in the market. And we’re fueling that energy as we add chicken and salad offerings to the Create Your Taste platform later this month. Let’s now turn to Germany, a market showing early signs of a turnaround. Customers are responding to the steps we have taken to enhance the appeal of premium products by emphasizing the provenance and sustainability of ingredients. The new clubhouse veggie sandwich in August, along with a re-hit of a proven customer favorite [indiscernible] contributed to positive comparable sales in the third quarter. And this month’s launch of the McB, a premium burger that’s made with 100% organic beef from farms in Germany and Austria reinforces food quality message to our customers. In France, we continue to maintain share despite the challenging macro environment and in a formal eating out market experiencing its fourth consecutive year of decline. Customers appreciate the actions we have taken to strengthen value at every price tier. This includes introducing McFirst earlier this year, a three item meal combination for under €5 and extending Petit plaisir across more product categories and dayparts. In addition, strong marketing campaigns including the Grand Premium and the American summer food events have successfully driven premium sandwich sales. We are also elevating the service experience by providing customers with new ways to order and be served in our restaurants. Self-order kiosks are now in more than 90% of French restaurants and we are now offering table service in more than half. Strong performance continues in the UK and Canada. These two market’s ability to sustain prolonged growth is a direct result of their robust planning process, which directly links actions to the specific consumer needs. Strong quality campaigns in both markets are boosting customer perceptions of core classics and successful promotions, a new menu in use like the Chicken Legend in the UK and the new Mighty Angus in Canada have driven growth in premium products. Since Russia and China are two high growth markets of particular interest, let’s spend a moment on them. Both markets posted positive comparable sales from the quarter as they recover from last year’s well-documented issues. The team’s execution against strong recovery plans with a comprehensive focus around great tasting, high quality food, convenience and value has successfully restored brand trust scores in both markets. However, we face near-term headwinds given an economic slowdown in China and continued volatility in Russia. In addition to the operational elements of the turnaround plan, each market is executing around the globe, we continue a regular cadence of meaningful moves consistent with the leadership brand. We believe these moves will ultimately improve consumer perceptions of our brand. In September, we announced our plans in the U.S. to transition to cage free eggs over the next 10 years. More recently, we collaborated with a number of global brand leaders to raise awareness for the plight of refugees and the need to support the United Nation’s World Food Program. And earlier this week, we announced our participation in the White House Climate Pledge. Turning around our business requires a relentless focus on what consumers want and expect from McDonald's. Our responsibility is to give them reasons to feel good about visiting time and again. Our opportunity is to differentiate McDonald's while delivering what consumers want today, while laying the foundation for what they would expect tomorrow and our commitment is to deliver on both. I am pleased with the progress we have made and remain confident in the ability of our talented system of franchisees, employees and suppliers to revitalize our connection with customers as we execute our turnaround plan into 2016. Thank you. And I will now hand it over to Kevin.

Thanks Steve and hello, everyone. Today’s earnings release marks our first quarterly reporting under the new segment structure. So I want to spend a few minutes outlining the new segments as a lead-in to my discussion of the factors that impacted the company’s third quarter performance. Effective July 1, we completed an important first step in the company’s global turnaround plan, the reorganization of our business from a geographically focused structure to segments that combine markets with similar characteristics and opportunities for growth. Our reporting segments now include the U.S., our largest individual market accounting for over 40% of consolidated operating income, the international lead segment, which includes our established markets of Australia, Canada, France, Germany and the UK that collectively account for about 40% of the company’s operating income; the high-growth segment, which includes markets with relatively higher restaurant expansion and franchising potential, including China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands. Together, these markets account for about 10% of the company’s operating income and the foundational and corporate segment that encompasses the remaining markets. Each of which has the potential to operate under a largely franchised model. These markets are combined with corporate activities for reporting purposes. From a business operation standpoint, this new structure brings similar markets together to leverage their collective insights and expertise to deliver a better overall experience for our customers. From a reporting standpoint, the new structure provides greater visibility into the key markets driving the vast majority of the company’s underlying financial performance. So let’s take a look at the major drivers of our third quarter results. Earnings per share for the quarter increased $0.31 to $1.40. In constant currencies, third quarter earnings per share increased $0.48. These results benefited from the comparison against prior year results, which included an increase in our tax reserves and the China supplier issue. These items negatively impacted third quarter 2014 earnings per share by $0.41. Excluding the impact of the unusual prior year items, third quarter earnings per share would have increased $0.07 or 5% in constant currencies. Looking beyond the unusual prior year items, third quarter global comparable sales were up 4% reflecting positive comparable sales across all segments and positive guest counts in all segments except the U.S. The international lead market segment was the largest contributor to the company’s third quarter comparable sales performance, posting an increase of 4.6%, led by strong comparable sales and guest counts in Australia, the UK and Canada. Germany’s results were uneven, but encouraging as the market posted positive comparable sales for the second consecutive quarter. And in France, comparable sales were marginally negative as the market’s macroeconomic environment and informal eating out industry remained challenged. The high growth markets generated strong comparable sales of 8.9% for the quarter, reflecting sales recovery in both China and Russia. For perspective, China’s comparable sales were up 26.8% for the quarter. The U.S. reported a comparable sales increase from 0.9% for the quarter, supported by the introduction of the new buttermilk crispy chicken sandwich and a return to the classic recipe for our Egg McMuffin. Comparable sales performance improved for the latter part of the quarter. With more than 80% of our global restaurants franchised, the largest driver of operating income continues to be our franchised margins, which totaled $1.9 billion, a 7% increase in constant currencies for the quarter. The franchise margin percent increased 20 basis points to 82.2%, driven by the positive comparable sales generated by the international segments. Global company operated margin dollars increased 9% in constant currencies to $675 million for the quarter, while the company operated margin percent increased 10 basis points to 15.8%. China’s sales recovery accounted for the majority of the margin improvement for the quarter, partly offset by ongoing labor costs in the U.S. The incremental labor costs in the U.S. related primarily to our decision to invest in our people by raising wages and providing paid time off for employees at our company operated restaurants, as well as providing educational assistance to all eligible U.S. restaurant employees effective July 1. These costs, along with wage increase have mandated by several states during the first half of the year, impacted third quarter U.S. margins by about 400 basis points. For the quarter, U.S. commodity costs rose about 1%, primarily due to higher beef prices. Our U.S. third quarter pricing year-over-year was up about 2%, which remains below food away from home inflation of around 3%. The current projected increase in food away from home inflation for the full year remains at 2% to 3%. Commodity costs for the international lead markets segment were up about 0.5% in the quarter. While price increases vary by market, year-over-year increases for these markets averaged 1% to 2%. Moving down the P&L, G&A for the third quarter ended at $584 million, up 9% in constant currencies due entirely to higher incentive-based compensation accruals versus the prior year. Despite this unfavorable quarterly comparison, we are making progress against our previously announced savings target. Looking beyond the third quarter, currency translation is expected to be a headwind for the final quarter of 2015 as the U.S. dollar remained strong against nearly all of the world’s other major currencies. Based on current exchange rates, we expect currency translation to negatively impact fourth quarter earnings per share by $0.08 to $0.10. As usual, take this as directional guidance only, because rates will change as we move throughout the quarter. Before I conclude my remarks, I want to make a comment about our financial outlook for the full year 2015. As you know, each quarter, we typically provide details around our expectations for several key components influencing our financial results in an outlook section. In light of our upcoming November Investor Meeting, we did not provide an update on our financial outlook in either today’s prepared remarks or as part of today’s 8-K filing. An update on these components will be provided in conjunction with our investor meeting in a few weeks. In closing, the transition in both our operating and reporting structure represents a new era for McDonald’s as we move toward becoming a more focused and efficient organization. While we are less than six months into executing our turnaround plan, our third quarter results demonstrate early signs of progress with both our top and bottom line results. We are encouraged by this progress, but recognized that there is much more work to be done. As we begin fourth quarter, we are energized by the challenges in front of us. 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 Joe Buckley of Bank of America Merrill Lynch.

Good morning. Thank you. I would like to ask a about the U.S. all-day breakfast launch. I don’t know if you can talk about the experience so far sales wise and whether you can talk about the sales or not, maybe talk about some of the operational issues, challenges and what you have learned kind of two weeks into the national launch?

Yes, hi, Joe, Steve here. So, we launched officially nationwide on October 6, and I would say the enthusiasm levels from customers and from our teams in the restaurants are high. It’s been a successful rollout. The owner/operators have really embraced this. I mean, to go from a test market in May to a nationwide rollout by October is a significant validation of the alignment of the operators behind this. When they approved it, they approved it with a 98% plus approval rating around the country. So, there is a lot of unity and alignment behind it. And from an operational perspective having spent a fair bit of time in the markets the last two or three weeks, the operators have been really again enthused at the fact that this has created - it’s been a lot smoother from an operational perspective than perhaps people had feared. The reality is the ingredients, the equipment, the training, the procedures is already very, very well-established in the restaurants. And by launching all-day breakfast, whilst at the same time removing some of the more complex lower sales items at the same time, we have a net simplification in the restaurants, and we have a – we are driving full. So, it’s early days to give too much a read on sales, but we are certainly encouraged. And more importantly, the owner/operators are very encouraged about how we have kicked off.

Next question is from Andy Barish of Jefferies.

Hey, guys. Just on the U.S. margin side of the story, is that 400 basis points going to kind of continue on the labor line, just to try to get a sense of that investment over the next year or so?

Hey, Andy. As we announced in April, we made this decision to invest in our people and raise wages, provide paid time off. And at that time, we indicated that we expected the impact of this as well as other state-mandated increases to be about 200 basis points on our margins for the full year this year. Since obviously the large majority of that impact happens in the second half of the year that implies that the impact on the second half would be substantially more than 200 basis points. So, the impact is relatively in line with our expectations. The payback from the investment will take a little time in terms of lowering turnover, having stronger employees, deliver a better customer experience ultimately driving top line sales. Moving forward, it will obviously continue to impact margin comparisons for the next three quarters until we lap the July 1. But as you know, margins are also significantly impacted by our top line. So, if we are able to generate higher comps that would certainly mitigate some of that impact.

Andy, just to add on to that, just clearly there is the cost element, we try to be very transparent about that. Ultimately, the ambition from the move we have made is to just drive the experience in the restaurants and we see this as a meaningful move for us to be able to attract and retain the best talent in the marketplace. And if we can drive some efficiencies by reducing turnover which a motivated, committed workforce tend to reduce the turnover levels, we maybe able to get some benefit if it come backs from that. But I just wanted to broaden out the conversation, because yes, there is a cost, but frankly, this is part of the bigger picture, running better restaurants, motivated teams and committed crew.

Next question is from Will Slabaugh of Stephens.

Yes, thanks guys. It’s actually Billy on for Will. Just wondering if now that we have a new reporting structure, if you could just kind of walk us through some of the cadence and I guess distribution I guess of the refranchising initiatives and maybe some of the new store openings across each segment?

Yes. So, you can see the actual new store openings within each segment in the back of the earnings release. As far as moving forward and how kind of capital and refranchising and new openings may happen in the future, we will talk about that more in the upcoming investor meeting in November.

Next question is from David Palmer of RBC.

Thanks. Looking back at the summer ‘11 value menu, could you just comment as to where that did work, where it didn’t work, some of the lessons of that? And separately, the simplification of the menu in the U.S, it seems to be something that’s more to come. Where do you stand on that? And where do you see that going forward? Thanks.

Yes, hi David. So, from the value program across the sub, I think on the call last quarter, acknowledge that it got off to a little bit of a bumpy start as we launched it, it was in a way bumping into some of the local value initiatives that each of the regions were driving, which made – and then we reset and the performance of the $2.50 double cheese and small fry improved across the summer as the focus got clearer and our execution in the restaurants got sharper. So, it filled the gap for us. We do have a desire, along with our owner/operators of a more sustained value platform, which we will be looking to introduce through 2016, but it certainly played a meaningful role across the summer helping to drive the footfall. In terms of simplification, I just – again, simplification in the way we are looking at this and the way the team in the U.S. is looking at it is, menu is part of it, but there is a lot more we can do to help simplify the restaurants on a day-to-day basis, both from a customer perspective, but also from our managers and our crew. So, there is operational simplification, there is training simplification. There is things we can do with merchandising to make it easier for customers and navigate the restaurants and also with packaging as well. So, the team, there were sub-teams that are addressing each of these areas of opportunity. So, yes, menu is one piece, but the whole operational complexity, the training and merchandising and packaging is another. And it’s the sum of those parts is what manages and begin to recognize that we are working hard to make their life a little easier, so they can just focus on what they love to do which is just running the restaurants and serving customers.

Next question is from Matt DiFrisco of Guggenheim.

Thank you. The question is that you guys cite that the chicken item was – which I think most of us perceive to be somewhat premium was a successful driver and welcomed by the American consumer and the part of their recovery and the comp going positive. But a lot of the attention has been mentioned about sort of the value consumer and the value coming down. And there are some votes coming now on the new value menu in the weeks ahead. I am just curious, is this – has this experience maybe emboldened you to think there is and the new product innovation might be a little more skewing towards the premium side or how should we look at the – where the easiest opportunity is to recover if the consumer that might be in the near-term lapse and you can get back quicker and what would be the thing of the marketing they’d respond to the most of, would you think it will be premium or value?

Yes. Thanks for the question. And again, the way we look at this is how can we deliver the best value across all tiers on that menu. So you are actually right with the buttermilk chicken. That was premium product, premium quality and a premium price that goes with it. And because of the taste, because of the quality and the execution of restaurants, their customers really did respond well. And as I said earlier, it’s got outperformance at the high end of our expectations. But I think you would see, as we build our calendars out across any of our markets, but certainly here in the U.S, we do want to – we want to provide the best value of each level, great value core products, great value premium. And probably one of the areas where we are still a little weaker is at that more entry level, value level. And that’s what you have been hearing about. And that’s what – we are working with the operators on and the operators are aligning behind what they believe will be strong platform as we enter 2016 to help drive the foothold. Because we know that the top line going into positive territory was encouraging for us. There is no doubt about that. Our ultimate measure of success will be serving more customers more often and that’s getting the guest counts moving as well.

Next question is from Jake Bartlett of SunTrust.

Thanks for taking the question. Just to gauge the kind of the core, the turnaround in the U.S. aside from the breakfast all day, when do you think that the fourth quarter in the U.S. will be positive even without the breakfast all day introduction?

It’s a difficult one to read. I mean what I would say is what has given me the most satisfaction from the way that the team have galvanized themselves in the U.S. is actually we are running better restaurants than we were a year ago. So if – and that is ultimately what customers respond to. And then as we innovate around the menu and have promotional activity and have fun with that, that would increment the sales, but running better restaurants day in and day out. And customers are telling us through this kind of very material feedback loop we have now that we are – they are noting the changes in the areas that mattered most to them, which is speed, friendliness and accuracy. Through the quarter, it’s probably fair to say we ended the quarter just a little stronger than we started. But I wouldn’t read too much into that. I mean, turnarounds are about momentum and we want to establish momentum over the short-term, medium-term and long-term. We have got one – we put one mark around that. And as we start to build quarter-upon-quarter, you will be able to read that no more underlying momentum in the business. But running better restaurants is a great start, shopping up our merchandising, simplifying the drive for operation, underpins everything else we are doing. So I feel good about that.

Next question is from Sara Senatore of Bernstein.

Thank you. I wanted to ask about some of the high growth markets. Obviously very, very strong comps out of China and it sounds like Russia also, I guess a couple of questions. One is you did mention that some near-term headwinds from volatility, but certainly – or a slowdown in the economy. But certainly, that wouldn’t have appeared to be the case in the quarter. So I just wanted to ask about that comment. And also the margins there, again on such high comps, they might have expected even more margin expansion, can you just talk about, is that your emphasis on value in that market and clearly, again, with such strong comps, the right trade-off to make. But is that what we are seeing there. And I guess, last piece on that segment is, I think you are targeting more of a franchise mix. So is it safe to assume that most of the refranchising that you have laid out will come in China and Russia or a disproportionate amount? Thanks.

I think probably both Kevin and I will have a go on that one, Sara, there is a fair bit in there. So China clearly, took a hit third quarter last year. We expected a return to growth clearly. And we are pleased we did. I have got to say, I am very proud of the team in China. I am going to say I am very proud of the change in China because they were in a very difficult situation a year ago. And they said after facing a two-pronged approach to recover the business momentum. One was around trading hard and particularly trading hard on value. And the second one was restoring brand trust. And actually, in that market now, our trust metrics are higher than they were prior to the supplier incidents a year ago. So I think that kind of validate the focus they have put on there. As we look forward, there are probably four elements the team are working on across the next couple of quarters, continuing on brand trust, consist everyday value at the entry and mid-tier levels. They have got a big an exciting play around convenience and particular around digital activation and delivery. So those are two drivers that aren’t unique to China, but are very material to the consumer in China. Digital activation, working with some of main tech partners in China, we got some great relationships there and a very strong delivery business. And the full fun is just around consumer excitement, just having fun with products and the experience in the restaurants. So we – I don’t want anyone to think that just because we were down last year, you would ultimately bounce back. You have got to work hard for it. The team have worked for it. And net-net, if you look at the 2-year comp, we were slightly up across that 2-year period, which across that quarter, which I think is credit to the team.

Let me touch on margins and franchising. Related to margins in that group, a couple of things. One, certainly China’s margins were covered in this quarter versus last year as a result of their sales recovery. Russia has currency pressure. We import a chunk of our food and paper in Russia both in terms of dollar and euro. And so there is still pressure on Russia’s margins because of those imported food and paper costs. So that’s still putting pressure on the margins within the high growth segment. Related to franchising, I think we have said that most of our franchising opportunities, certainly it’s probably within Asia. So China certainly, would be a part of that. We will update a little bit more of our detailed franchising plans as we get to the investor meeting in November. But I think it’s safe to say that the high-growth segment which certainly have franchising activity going forward.

Next question is from Karen Holthouse of Goldman Sachs.

Hi, thank you for the question. I not only originally started talking about some of the wage increases at your stores. My understanding was they are going to be phased in towards $10 over a period of year. So once we get, is that correct, once we get to sort of the four out of the 200 basis points, how to think about sort of the next, quantifying the next side of that. And then also, on the franchise side of this system, what sort of pressure might they be seeing on their margins right now from just overall wage pressures in the environment or is it another way to look at that just rate general wage inflation rates?

Yes. Karen, the plan what was never to phase in kind of these increases. We did an increase across the board in July really impacting kind of all other the restaurants. So our average rate right now at our company operated restaurants is nearly $10 right now. And so I wouldn’t see a significant additional phasing in above and beyond kind of where we are right now. Certainly, as state mandate changes, we may have to adjust to some of those. But there isn’t another wave in our plans to go in and kind of it all restaurants again.

Next question is from Nicole Miller Regan of Piper Jaffray.

Thank you. I want to understand a little bit more of where you are taking shares from. And I am not sure these are the buckets you would define it. But may you could adjust accordingly. But by – in order of magnitude, do you think that you are and can continue to pick up share from C stores or is it other legacy large QSR players or is it from consumers eating at home? Thank you.

So, this is a U.S. question, I am assuming, Nicole?

Yes.

So, I will answer on that basis. Well, I think our immediate term is to win back share from the nearer term competition. That’s what we are focused on. And then as we build out our experience in the future, I think that will get us – that will make us more attractive to a broader set of customers. But at the moment, I would say nearer term traditional competition is the market share we are biting at the moment. And clearly, we are playing to our strengths. Breakfast has always been a historic strength and we continue to do very well at breakfast during the breakfast daypart, but now into other dayparts as well.

And just as an additional perspective, for the third quarter, our comp GAAP was a negative 3.2%. So, we still have room certainly to increase that. That’s substantially down from Q2 and Q1. That’s QSR sandwich category that it’s against, but we certainly have opportunity and we have been seeing a few recent weeks kind of the opposite where we have been out comping some of that same competition.

Next question is from Brian Bittner of Oppenheimer.

The U.S. segment, operating income was still down a little bit, even though comps turned positive and that’s obviously because of all the investments you are making, but as you look out towards the next 6 to 12 months given the way you are thinking about cost, what type of same-store sales growth do we need to see some positive operating income growth to that overall segment? How are you thinking about that?

Yes, Brian. We had a little difficulty hearing, but I think you are asking about kind of the U.S. comp and what we would need potentially to maintain or grow margins there. So, we obviously talked about the labor costs that are impacting the U.S. We have said in a normal inflationary environment, we generally need a 2% to 3% comp in the U.S. to maintain margins. With these additional labor costs, certainly the comp needed to maintain margins in the near-term would be higher than that. Commodities right now aren’t a big pressure on us. And so commodities really aren’t the concern. It’s more of a comp needed to kind of overcome these near-term labor costs.

Next question is from Karen Short of Deutsche Bank.

Hi, thanks for taking my question. Congratulations on a good quarter. Just a question on all-day breakfast, I guess on any early read in terms of what your preliminary estimates might be on the comp benefit from the rollout? And I guess just maybe any early read on what kind of customer you are getting buying breakfast? Is it a new customer? Is it a cannibalizing sale? Any color there would be great.

I really don’t want to give too much guidance here, Karen, not to be evasive, but just when you are a first couple of weeks in and we have got a lot of media behind it I don’t want to give a wrong read. We are starting higher as you would expect out the box than what we would expect our steady run-rate to be when things settle down, but we see it being incremental profitable business that is driving existing customers in more often and attracting new customers. So, the anecdotals I get as I move around the country and getting to the restaurants is though if you are in a shoot in town, you are seeing a lot, a lot of activity into the evenings and the overnights around breakfast items that is just cultish amongst the students, but you can go directional mid-afternoon to see a more mature group that we are sitting there who can now enjoy the product with Egg McMuffin mid-afternoon and having to watch – clock watching and try and make the 10:30 a.m. deadline. So, it’s just makes life easier for customers. They don’t have to look at the watch and managed too hard their time. So, broad appeal, a strong start from an operational perspective, from an execution perspective and I think the team has done a great job from the marketing launch and just having some fun with it. I mean, more than anything else, it’s fun. Customers are enjoying it and so our teams and restaurants.

Next question is from Keith Siegner of UBS.

Thank you. Congratulations. So, is this momentum in the U.S. hopefully, it builds off all of the stuff from ops, new products, value digital messaging, all this. How do you feel about the status of the U.S. asset base? And the opportunity maybe to kind of re-image into this momentum and even further bolster it? Thanks.

So, you said the work here. And the most important word, I think in any consumer base of business or any retail is momentum. And momentum breached confidence, confidence breached – it becomes a virtual cycle of success, if you like. And we are just beginning to feel some early signs of that and you can see the confidence flowing through the restaurants and through the teams. So, clearly, for a turnaround, you want sustained growth. And we have slowed by delivered one quarter. So, this is one data point, but the steps that we have taken to get to here are steps they are going to continue to keep supporting our business going forward.

And one of the opportunities you mentioned, Keith, certainly is as you know, we are only about 50% re-imaged in the U.S. And so there is certainly opportunity going forward to more modernized that asset base in the U.S. and make sure that we have got the right facilities to bring in the customers that we want through on the cash.

Next question is from David Tarantino of Robert W Baird.

Hi, good morning. Steve, I have a question or maybe a clarification on how you are thinking about the improvement you have seen in the U.S. business so far. And I guess specifically on the Q3 improvement as it seems like it got better as the quarter progressed. Do you think that was more about the new product news that you had or the structural improvements you are making in the restaurants with respect to operations? And then maybe as part of your answer to that, if you could touch on what the metrics look like on feed of service now that you simplified the drive through menu?

Yes. I think there are number of ingredients that are beginning to come together. If you remember from the past, the U.S. undertook a fairly significant structural change itself. Now, about a year ago, where we eliminated and they are liberated a little more entrepreneurial spirit into the regions, that takes time to settle down. You can’t just hit your stride straightaway. So, I think as the regions and the teams in the regions begin to find their feet as it were, that helps. I don’t want to underestimate just the investments we are making in food quality. The investments that consumers care about such as the announcement to go to free range eggs, for example, such as the quality cues that you deliver with a buttermilk chicken. I mean, that is getting strong. But underpinning it and I will never ever move away from this, any market that’s successful around the world is because they are focusing on the day-to-day operation and just delivering at that moment of truth for the customer. That is what McDonald’s is all about. What we are seeing with speed of service? Well, actually, we are seeing greater improvement in the accuracy. So, accuracy is probably the strongest metric improvement we are getting, which on the basis that about 70% of the business goes to the drive-through. Clearly, accuracy is particularly important. But we begin to see a few seconds being shaved our average service times as we simplify the menu and sharpening up the operations, but it’s early days and we have got – there is a lot more progress we want to make, I have got to say that.

Next question is from John Glass of Morgan Stanley.

Thanks very much. My question has to do with the new operating segments, particularly outside the United States, can you – on two items. Can you talk about is this what the cost savings opportunities you are discovering are? It looks like G&A in many of those segments are lower, but maybe you are just picking it up on the corporate or you are actually finding real opportunities to consolidate some of those into the new structure? And from an operating standpoint, given your first quarter of operating into these different segments, are there examples of where you are operating the restaurants differently, because different leaderships looking at these markets differently or is that too early to really say?

Alright. I will start with the cost item and I will let Steve talk about kind of the leadership and running the markets differently. Couple of things going on here. One, you may have seen and it may have been a little confusing, but we tried to explain one of the things that’s gone on is we are moving a little bit from a very decentralized structure to one that centralizes certain non-customer facing functions and activities. So, along with that, some costs that historically were managed at a segment level now are being managed or will be managed at a central corporate level. So, some of the costs that were reflected last year in the segments are now in corporate, about $30 million of those in total of those costs. That doesn’t impact consolidated or total G&A. That’s more of just a reallocation. At the same time, we obviously talked about saving real consolidated G&A. And as I said, we are making progress on that and we will give a further update on those activities and the investor meeting in November.

And John, I will just talk about, if you like the operating segments and just the way the leadership teams are thinking. And we will certainly give more flavor to this in our investor meeting. But if I would just to take the lead market as an example, we have got the five major countries that contribute to the lead markets. They are overseen by a team of just three people. Now these are three very senior, highly talented individuals. But the decision making – and the feasibility into those five markets is so much clearer because we have removed the layers that tend to just obscure what’s going on. So if those three leaders can see something work in Australia. Our ability to share that with the Canadians, whether it’s the UK, German, France team and vice versa, obviously it’s far clearer. So the speed of the decision making, visibility into what’s working, visibility to what’s not working and just sharing that knowledge and getting to market quicker with things that work, we are already seeing the benefits of that. And I think that’s incredibly encouraging, because we have always had pockets of excellence. I want fewer pockets of excellence, I want a broader base excellence, so I believe this structure will help you deliver that.

Next question is from Jeff Farmer of Wells Fargo.

Thanks. Sorry if I missed the question, I am actually multitasking myself. But given the importance of a national price pointed value platform that you guys have discussed in the past, can you walk us through the steps you could take to potentially make that happen. I guess what I mean by that is any potential timeline for formulation of the menu testing of that menu and then assuming you are happy with the results, potentially, how quickly should we see a broad based national price pointed value platform hit the U.S?

Yes. So I mean the process that I am showing you a fairly familiar here in the U.S. is somewhat unique compared to other markets around the world, because it’s, by nature, a more complex and diverse market side here in the U.S. We are at the stage now where driven by insights, we have created a number of potential concepts. Some of those are in test already, but they are being discussed and being aborted on for approvals and discussed by the operators now. So the national teams have had more rigor around it and challenged it and have come up with really strong, could be strong compelling. The operators discussing that and they will make the right decision because the most important piece is alignment. And we have got great alignment now as a result of all-day breakfast. And that is – that’s part of the magic ingredient that McDonald’s here in the U.S. and the alignment with the owner operators. And I know that doing the right thing working through it and certainly into next year, will be a line – there will be something that we believe will be competitive from a customer perspective.

Next question is from Howard Penney at Hedgeye.

Hi. Thank you so much for taking my questions. Steve, you used the phrase net simplification a couple of times I think in your prepared remarks. I was wondering if you could explain that term, I know you have talked about simplification before, but what does net simplification mean and how much more is there to go?

Yes. I would tell you, Howard and thank you for the question because I have strong conviction of around simplifying our restaurant operations, because I believe the customer is the ultimate beneficiary. And then, when we do talk about doing something like an all-day breakfast, people scratching their head and say, well hold on a minute. You told about simplification, but now you are adding. So when I talk about net. I am saying we go t to take more complexity out through our decision -making that we ever put in, so that’s where one kind of – my language of net simplification works. So if we are not adding any new SKUs into the restaurant for breakfast because all the ingredients are already there. They are in the chillers, they are in the freezers, the equipment is already in place. So yes, there is the operational shift running. There is an operational complexity, but not an ingredient complexity. In the meantime, around the country, we have – the U.S. team has been very rigorous in their analytics on this and helping provide each and every color with a tool that helps them assess operational complexity versus contribution to product mix and margin. And then as a final screen which is around the brand value. So that’s helps – have actual detailed insight and rigor around supporting the costs taking items off. So on average, right I think you need at the start of the year, we removed around 7 items from the menu. It’s probably at leased another seven, if not more on average across the comps around the country now. And I know they are continuing on this path. And as we offer more abilities to customize and personalize food going forward, that may give us another opportunity to actually take further items on. So I hope that makes sense. The trouble saying simplification is definitely whenever you do [indiscernible] say on a hold a minute and making more complex. We are not going to be static. We are going to be energetic. We will innovate. We will have new products. It’s fun and that’s what customers want. We have got to make sure that we take more than that out of the restaurant complexity. So I hope that makes a little more sense.

Next question is from Andrew Charles at Cowen.

Thank you. Just on the improved order accuracy in the U.S., how do you plan to sustain this improvement as customization and personalization will become increasingly component of the experience as of the case in Australia, obviously digital initiatives can be a big help, but any other factors that we should be thinking about? Thanks.

Yes. I think two-pronged again, just from the day-to-day operation with our teams in the field, it’s around trading. And the training that was rolled out across of the U.S., which was actually was an operator lead initiative initially, was around something called ask us teller. The way that we reconfigured our own internal procedures of how we take the orders, confirm the orders and then present the orders. And that has had a positive notable benefit in our accuracy. As we go forward, the more of that heavy lifting that we can get technology to do and the greater our accuracy will become. So whether it’s ordering through apps, whether it’s ordering it through self-order kiosks that we see elsewhere around the world, technology can certainly help us with putting the customer in charge of the ordering process and allowing technology to do the heavy lifting and then we can just prepare the food and serve it in a friendly way, so two pronged. We will never get away from day-to-day training. But secondly, we are working hard on the technology to help support this.

We have time for one more question. Next in the queue is Jeff Bernstein from Barclays.

Great. Thank you very much. Actually, just two follow-ups, one on the all-day breakfast, I know there has been lots of questions on the topic, I am just wondering being that you had at least some tests for a while was there any color in terms of what type of lift you might have seen in test market or maybe what that mix has gone to in that test market. And the other question was just on – you mentioned you had commodity costs. So it sounds like beef isn’t that onerous and I think you said the overall basket was only up 1% this past quarter. I am just wondering what your thoughts are as we look ahead and whether that could actually – do you think qualitatively that would impact McDonald’s or maybe the industry as you think about promotions and discounting and your new value platform potentially?

Okay. I will take the first one, Jeff. So I am a fairly resilient guy. I won’t get worn down by the same question kind of asked different direction. But I appreciate the interest. And of course we are as well. What I would say is the test markets gave us that kind of – that curve of initial launch volumes and then the settling down sustaining because that being trade to the business case that then got the buying from the broader operating community. So we are confident in the kind of the curve we expect to see of the contribution of all-day breakfast. We are encouraged that it’s 30 days. We are sitting here today, 15 or 16 days in. And I can tell you that the unity of the system around this and the responsible customers, which is the important piece is very positive. We will get share a bit more in November, obviously. Totally understand the interest in it. But it’s just too early. It just wouldn’t be fair to give a read on it right now.

And then related to the commodity costs in the U.S. yes, we said it was up about 1%, primarily beef costs, not a lot of commodity pressure on the other commodities in the third quarter. Going forward again, what the rest of the outlook stuff since it’s all interconnected, we will provide an update at our upcoming investor meeting related to kind of how things look in the future.

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

Yes. Thank you, Chris. And again, thanks for everyone for joining us this morning. In closing, I want to emphasize our commitment across of the entire system to consistently running great restaurants to give our customers even more reasons to dine at McDonald’s. We are focusing on executing fewer, bigger initiatives that will ultimately deliver better experience for our guests around the areas that matter most to the great-tasting food, fast friendly service, contemporary restaurant experience, all at the value of McDonald’s. The progress we have made in a short amount of time gives me confidence that we are making the right moves to turnaround our business and reposition McDonald’s as a modern, progressive burger company. Thanks to all of you, and have a great day.

And this concludes McDonald’s Corporation investor conference call. You may now disconnect.