28 -Jan -2021 0F'RQDOG¶V&RUS (MCD ) Q4 2020 Earnings Call

McDonald’s Corp. (MCD)Q4 2020 Earnings CallCorrected Transcript28-Jan-2021Today, brands are working through many societal issues that directly impact our businesses and the economy.And we have a unique role to play in ensuring these issues get addressed. That's true of COVID. Hard to imaginethat it was just a year ago last week that the first case of the coronavirus was confirmed in the US. Even while wecelebrate a vaccine created in record time, we know that COVID is at its worst right now in many parts of theworld, that so many of the communities we serve are experiencing record-high infection rates. We all must play arole as part of the solution.There's a lot of uncertainty ahead for us as individuals and for this industry, and neither may change for sometime. We look forward to joining with other business leaders and working with the Biden Administration andCongressional leadership, as we have with every US President throughout our 66-year history, to address thechallenges the country faces.As we work to hopefully return to some version of normal, the needs of our customers have changed. They'redining in less and taking out more, visiting less in the morning and much more for lunch and dinner and interactingwith other people and brands less in-person and more through digital. Just as the investments and choices we'vemade have driven broad-based strength, Accelerating the Arches will enable us to grow even more sustainablywith a bottom-up approach to our growth pillars, our MCDs.M stands for maximizing our marketing, so our significant marketing investment remains a true growth driver.We're improving creative effectiveness and leaning into social and digital to drive customer engagement. Teamsremain focused on the right balance of sales activation with brand building as we work to optimize marketingreturns.We made an immediate impression in the closing weeks of 2020 with the launch of our Serving Here campaign inthe US, celebrating the myriad ways we feed and foster communities. At the same time, many markets droveperformance in the fourth quarter with successful sales-building promotions like 30 Deals in 30 Days in Australia,and Monopoly in Australia, France and Canada, featuring customer's core favorites. These are great examples ofusing our marketing muscle to drive sales without adding complexity to our kitchens.C stands for our commitment to the core menu. Our delicious core is something people rely on and return to againand again. Our core classics comprise roughly 70% of our food sales across our top markets. They drive growthand profitability and we saw that this past year.Developing a reputation for great chicken represents one of our highest ambitions. That's why markets areactivating multi-tiered strategy and holistic approaches that integrate great products, strong and sustainedmarketing, and operations excellence. We're building on the strength of core equities like Chicken McNuggets andMcChicken sandwiches, which have seen significant growth, as we continue to focus on improving our largechicken sandwich offerings around the world. In the US, we're excited about the return of Spicy ChickenMcNuggets and the launch of the new Crispy Chicken Sandwich at the end of February.Markets are also making our delicious and popular 100% all-beef burgers even better with improved cookingprocedures and new buns. Russia was the latest major market to roll out these changes in Q4, driving meaningfullifts in hamburgers sold.We've also continued to create menu excitement that keeps customers engaged by bringing back limited-timepromotions like McRib, and introducing new items like our bakery line in the US and the premium McBaguette andSignature Recipe in France.51-877-FACTSET www.callstreet.comCopyright 2001-2021 FactSet CallStreet, LLC

McDonald’s Corp. (MCD)Corrected TranscriptQ4 2020 Earnings Call28-Jan-2021What's important is that our approach to our menu is thoughtful and judicious. We've seen significant benefits withour streamlined menus and reduced complexity. New items must earn their place on the menu.Lastly, D stands for doubling-down on digital, delivery and drive-thru. They were the difference-maker when thepandemic hit and are at the heart of our combined efforts to create a faster, easier, better customer experience.Digital sales exceeded 10 billion or nearly 20% of systemwide sales in 2020 across our top six markets. We'removing aggressively to bring My McDonald's with mobile ordering, payments, delivery, rewards and funpromotions like digital calendars to our customers as soon as possible. We're on track to have elements of MyMcDonald's across our top six markets by the end of 2021, featuring loyalty programs in several of those markets,including a US loyalty launch later in 2021.We have big ambitions. We've already shown we know how to meet big goals, as we've proven with delivery. Thepast four years, McDonald's has expanded the number of restaurants offering delivery to nearly 30,000. AndCOVID has underscored how meaningful our efforts have been to our customers. Many markets, includingAustralia, Canada and the US, have doubled their delivery sales mix over the past year.We continue to build out our delivery advantage, much like we're expanding our competitive advantage on drivethru. With over 25,000 drive-thrus around the world, we've made smart investments to bolster foundationalelements like staffing, positioning and order assembly. We've reduced service times each of the past two years,even as a greater percentage of customers went through our drive-thrus during 2020.While each pillar will further extend our leadership, what's especially powerful is the exponential impact when allthree pillars come together. Famous Orders platform in the US is a prime example. In the fourth quarter, wefeatured favorite menu items of Latin music icon, J Balvin, and classic holiday characters, including Santa Clausand the Grinch. With exclusive deals on our app, customers rediscovered iconic core menu items like Big Macsand Egg McMuffins, and tried new items like cinnamon rolls. And we drove digital adoption, including significantlifts in app registrations and use. That's our sweet spot. That's how M,C, and D come together to drive demand,sales, and growth without creating additional complexity.Our ability to navigate the past year would not have been possible without the incredible commitment of ourfranchisees, our supply chain and agency partners and our employees, who have continued to focus and executeduring this extraordinary past year. When I think about everything our restaurant teams around the world havedone to provide an essential service at the front lines, serving our customers safely every step of the way, I can'thelp but believe that this amazing system is proving every day, this isn't just a job. To them, and to us, it'ssomething bigger. It's our chance to make a difference for our customers and our communities.I'll now turn it over to Kevin to talk in more detail about our financial results. Kevin?.Kevin M. OzanChief Financial Officer & Executive Vice President, McDonald's Corp.Thanks, Chris. Chris talked a bit about our full year results, but let me spend a few minutes talking about thequarter.Global comparable sales were down 1.3% in Q4. Comp sales were positive in October, as I mentioned on our Q3call, but they returned negative in November and December as a result of the widespread resurgences and thereturn of government restrictions, particularly across the International Operated Markets.61-877-FACTSET www.callstreet.comCopyright 2001-2021 FactSet CallStreet, LLC

McDonald’s Corp. (MCD)Q4 2020 Earnings CallCorrected Transcript28-Jan-2021In the US, comp sales increased 5.5% for the quarter, ending the year with six consecutive months of positivecomps. Sales grew in all major dayparts, including breakfast, and this is on top of prior-year growth across thesedayparts. Our strategic investments, including incremental marketing spend, fueled our momentum with strongnational promotions like McRib, buy one get one for 1, our new bakery line and two separate offerings ofFamous Orders. Dinner continued to be our leading daypart, with strong sales of core items as customers keepcoming back for familiar favorites.In the IOM segment, comp sales were down 7.4% in Q4. And while performance varied across the countries,nearly all of our major markets grew traffic share. Strong positive comps in Australia and the UK were more thanoffset by negative double-digit comps in France, Germany, Italy and Spain.Beginning at the end of October, additional government restrictions went into effect across many of our markets,including limited sales channels, reduced operating hours and dining room closures. Australia benefited fromstrong menu and marketing news in the quarter, including the successful launch of a new chicken line withMcSpicy at its center, another example of great ideas and products traveling across our markets, as McSpicy hasbeen a customer favorite in China and several other markets in Asia for a while. Since the start of the pandemic,Australia has also doubled their delivery sales.The UK has achieved comp sales growth every month since August, despite increased restrictions reintroduced inearly November. The quarter benefited from a focus on core menu as well as phenomenal growth in delivery. Andfinally, comp sales in the International Developmental Licensed segment were down 3.6% for the quarter,reflecting significant improvement for most markets over Q3.Japan once again delivered strong positive comp sales for the quarter and for the year, as Chris mentioned. Themarket is meeting customer's changing needs, growing delivery in mobile ordering, along with running successfulLTO promotions, all while further strengthening trust in our brand.And in China, results have improved quarter-over-quarter since Q1. Recovery continued on a steady pace, with amarketing plan focused on delivery and digital along with new chicken offerings. And despite the challenging year,nearly 500 new restaurants were opened across the market in 2020.Turning to January trends, in the US, sales comps continue to be strong and are expected to be up high singledigits, with continued growth across all dayparts and assisted by consumers receiving government stimuluschecks. IOM comp sales are projected to be down low double-digits, given the government restrictions thatremain in place in most markets. Continued momentum in Australia is being more than offset by double-digitnegative comps in France, Germany, Italy and Spain. And we expect this trend to likely continue until dine-inresumes.Adjusted earnings per share in Q4 was 1.70, after excluding gains on the sale of an additional 3% of ourownership in McDonald's Japan. While global restaurant margins were down as a result of the pressure on sales,the US grew both franchised and company-operated margins up over 70 million for the quarter.Consistent with the guidance we gave in our third quarter remarks, G&A increases for Q4 were primarily driven bysome one-time investments we made in renewed brand activity, including the launch of our Serving Herecampaign and our commitment to donate 100 million to Ronald McDonald House Charities, as Chris mentionedearlier.71-877-FACTSET www.callstreet.comCopyright 2001-2021 FactSet CallStreet, LLC

McDonald’s Corp. (MCD)Q4 2020 Earnings CallCorrected Transcript28-Jan-2021Turning to our outlook for 2021, as Chris talked about, there's still a lot of uncertainty both today and as we lookahead. We're confident in our ability to manage through this uncertainty, and that our Accelerating the Archesstrategy will continue to drive growth in the business. We expect 2021 systemwide sales growth of low doubledigits in constant currencies versus 2020, with new unit expansion contributing about 1%. This reiterates the midsingle-digit growth rate off of 2019 that we mentioned in November.We ultimately measure overall financial efficiency by our operating margin, as it serves as the mostcomprehensive gauge of our operating performance. We expect our operating margin percent to be in the low-tomid 40s for 2021. In the US, we expect higher depreciation expense of about 60 million versus 2020 in franchisemargins related to our modernization efforts. Depreciation will continue to be a P&L headwind for the next fewyears, even though it will have no impact on future cash flows.In the IOM segment, while we expect improvement in our company-operated margin percent over the course ofthe year, we don't expect to get back to pre-COVID levels in 2021, as a result of near-term sales and costpressures.Turning to G&A, as we've become more efficient with G&A required to run the business, we're able to makestrategic investments in areas like digital and technology to drive growth. Looking ahead, we expect 2021 G&A todecrease about 2% to 4% in constant currencies over 2020, which reiterates our expectation that G&A will beabout 2.3% of systemwide sales.Looking at other operating income and expense, we expect our equity pickup to be slightly higher for 2021 due toimproved results versus 2020, partially offset by our reduced ownership in Japan. Gains on restaurant sales lastyear were suppressed due to COVID, so we expect gains this year to be about double that of 2020.And finally, in 2020, we had some one-time items included in the asset dispositions line related to store closingsand bad debts. For 2021, we expect that line to get back to a more normal level of expense of roughly 100million. We're projecting our 2021 effective tax rate in the range of 21% to 23%.And finally, turning to FX, based on current exchange rates, foreign currency translation would benefit EPS byabout 0.06 to 0.08 in the first quarter and 0.27 to 0.29 for the full year. As usual, this is directional guidanceonly as rates will likely change as we move throughout the year.Moving to capital expenditures, as we indicated in November, we expect to spend roughly 2.3 billion of capital in2021. New restaurant development is an important driver of our growth as we see significant expansionopportunity, especially in the IOM segment. These markets have driven strong growth over the past several yearsand deliver strong returns on new restaurants.This year, we plan to open over 1,300 new restaurants globally. Of the 2.3 billion of capital, we'll spend roughlyhalf of that to open nearly 500 restaurants in the US and IOM segments. The remaining 800-plus new restaurantopenings are across the IDL markets, including nearly 500 in China. As a reminder, our strategic partners in thesemarkets provide the capital for restaurant openings.The remaining half of CapEx spend will go towards reinvestment back into our US and IOM restaurants, includingabout 500 million to modernize approximately 1,200 restaurants in the US. We're nearing completion of our USmodernization efforts and expect over 90% of projects to be complete by the end of the year.81-877-FACTSET www.callstreet.comCopyright 2001-2021 FactSet CallStreet, LLC

McDonald’s Corp. (MCD)Corrected TranscriptQ4 2020 Earnings Call28-Jan-2021And finally, I want to conclude with our free cash flow profile. With the improvements made to our businessoperating model over the last several years, and the consistent strength of our global business, our free cash flowgrew significantly through 2019. In 2020, even with significant disruption, we generated free cash flow of over 4.5 billion. And free cash flow conversion, which measures our ability to convert bottom line earnings to freecash flow, was nearly 100%. In 2021, we expect to convert more than 90% of our net earnings to free cash flowand to generate free cash flow near 2019 levels, or about 5.5 billion to 6 billion.Our capital allocation priorities remain the same. First, investing in the business to drive growth. This includesboth capital expenditures as well as investments in technology and digital. Second, prioritizing dividends to ourshareholders. After that, most of our remaining free cash flow for 2021 will go towards paying down debt to getback to pre-COVID leverage ratios by the end of the year.As we start the new year, I'm confident that the plans we have in place will position us to continue to deliversustained, long-term profitable growth for our system and shareholders.Now, I'll turn it back to Chris to close.Chris KempczinskiPresident, Chief Executive Officer & Director, McDonald's Corp.Thank you, Kevin. Despite the uncertainties we continue to face, one thing is clear. McDonald's is well-positionedto emerge from this moment with competitive strength and we're confident we can keep capturing market shareas we look to the future.We're confident because we were growing share in most markets before COVID. We're confident because we'vecontinued growing market share during COVID. And we're especially confident because we've gained importantinsights which will bolster the strategic vision we set with Accelerating the Arches.This clarity of purpose and strategy is the reason that in October we increased our annual dividend toshareholders. Not only did it mark 40-plus consecutive years of increases, it reinforced to our shareholders ourconfidence in the long-term strategy. It's also the reason we continued directing investments where they make themost strategic sense and build on our strengths. We'll uphold McDonald's commitment and legacy as aresponsible and reliable choice for trusted delicious food, and we'll do so while feeding and fostering communityand continuing to create delicious feel-good moments for everyone.This is the mission that has always, and will always, [ph] animate our work, because(28:26) when it comes to our customers, our employees, our franchisees and our suppliers, it doesn't just matterwhat we do. It matters how we do it.And now, we'll begin Q&A.91-877-FACTSET www.callstreet.comCopyright 2001-2021 FactSet CallStreet, LLC

McDonald’s Corp. (MCD)Corrected TranscriptQ4 2020 Earnings Call28-Jan-2021QUESTION AND ANSWER SECTIONMike CieplakACorporate Vice President-Investor Relations Officer, McDonald's Corp.All right, thank you. [Operator Instructions] Our first question, to get us started, is from John Glass with MorganStanley.John GlassAnalyst, Morgan Stanley & Co. LLCQThanks. Good morning, everyone. Chris and Kevin, can you talk a little bit more about the IOM markets and thetactics you're using to drive sales? I understand that dine-in is more important. There's less drive-thrusstructurally, but what are you doing to help sort of bridge this gap to get to easier comparisons in the reopening?Is this a market, for example, you might try launching the My McDonald's Rewards earlier? Can you talk aboutmaybe the role of delivery and what you're doing to delivery, some things that can help obviously bridge this gapwhen you've got such restrictions in place?.Chris KempczinskiAPresident, Chief Executive Officer & Director, McDonald's Corp.Hey, John, this is Chris. Thanks for the question. And you know, in the IOM market, as you know, it is – thosemarkets tend to be more of a dine-in business. And so, the biggest thing that we're doing with many of thesemarkets having dine-in closed, is we are trying to do as much as we can to drive our drive-thru, delivery, ourdigital businesses and we're having good success with that.Some of it, though, is, frankly, limited because in many markets, there are hour or operating hour restrictions, 6:00PM, 8:00 PM, et cetera. So I think part of what we are trying to do is, with our franchisees, so long as we aredealing with government restrictions around what you can open, how long you can be open, it's about supportingthe franchisees, as we said in the opening remarks here, m

0F'RQDOG¶V&RUS (MCD ) Q4 2020 Earnings Call Corrected Transcript 28 -Jan -2021 1 -877 -FACTSET www.callst