McDonald's (MCD) Q3 2025 Earnings Call Transcript

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DATE

Wednesday, Nov. 5, 2025, at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Christopher J. Kempczinski
• Executive Vice President & Chief Financial Officer — Ian Frederick Borden

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RISKS

• Management noted, "QSR traffic from lower-income consumers declining nearly double digits in the third quarter, a trend that's persisted for nearly two years," according to Christopher J. Kempczinski, indicating pressure on guest counts among price-sensitive segments.
• Christopher J. Kempczinski stated, "We continue to remain cautious about the health of the consumer in the US and our top international markets and believe the pressures will continue well into 2026," highlighting ongoing consumer weakness.
• Ian Frederick Borden said, "[the company will] continue to operate in an environment where sales have been a little bit more subdued and inflation has been a little higher than what," confirming ongoing margin pressures due to inflation and moderated sales growth.
• Both executives cited beef inflation as a cost concern, with Borden saying, "beef inflation is up. A fair bit. I think the strength of our supply chain means our beef costs are, I think, certainly up less than most. The still elevated, but I think our basket of goods means we still, have confidence in that kind of low to mid single digit range," which may impact margin performance ahead.

TAKEAWAYS

• Global Comparable Sales -- Global comparable sales rose 3.6% in Q3 2025, with growth across all segments, reflecting value initiatives and strong execution in a challenging consumer environment.
• System-wide Sales Growth -- Global system-wide sales growth exceeded 6% in constant currency for a second consecutive quarter, driven in part by new unit openings.
• US Comparable Sales -- US comparable sales increased 2.4%, with higher-income consumer visits rising almost double digits while lower-income traffic declined nearly double digits.
• International Operated Markets (IOM) Comp Sales -- Comparable sales in International Operated Markets gained 4.3%; Germany achieved its strongest comp sales in two years, and Australia captured share for a second straight quarter.
• International Developmental Licensed Markets Comp Sales -- Comparable sales in International Developmental Licensed Markets rose 4.7%, led by Japan, which posted nearly two years of positive guest count growth.
• Adjusted Earnings Per Share -- Adjusted earnings per share were $3.22, including a $0.04 foreign currency translation benefit; constant currency adjusted EPS declined 1% due to a higher effective tax rate.
• Restaurant Margin Dollars -- Restaurant margin dollars surpassed $4 billion for the first time, up 4% in constant currency, signaling operational resilience.
• Adjusted Operating Margin (YTD) -- Adjusted operating margin year-to-date was 47.2%, up from 46.7% in the prior year period, reflecting system-wide execution and portfolio management.
• G&A Expenses -- G&A expenses rose year-over-year, driven by a $40 million marketing spend for the EVM relaunch, higher incentive compensation, and strategic investment timing.
• Effective Tax Rate -- The effective tax rate was 22.8%, with management projecting a full-year rate of 21%-22%, narrowing the prior guidance range.
• Dividend Increase -- A 5% dividend increase was announced in October 2025, marking the forty-ninth consecutive year of dividend growth.
• Extra Value Meals (EVMs) -- Extra Value Meals were relaunched in September 2025 with minimum discounts of 15%, accounting for 30% of US transactions and supported by targeted corporate funding, which is expected to phase out after Q1 2026.
• Chicken and Beverage Innovation -- US Snack Wraps launch drove high trial; A 500-restaurant beverage test launched in September exceeded satisfaction expectations and lifted average checks.
• Digital Engagement -- US MONOPOLY campaign spurred app downloads; The company reported about 45 million 90-day active US digital users as of Q3 2025.
• New Restaurant Development -- 1,000 new units were added in China in 2025; maintaining guidance for reaching 50,000 global restaurants by 2027.

SUMMARY

McDonald's (NYSE:MCD) reported continued global comparable sales growth in Q3 2025, with a distinct divergence between higher- and lower-income consumer traffic in the US, while intensified inflation and industry pressures impacted margins and guest count trends. The Extra Value Meal relaunch, now supported by targeted funding and set to transition to franchisee-only backing after Q1 2026, addresses immediate competitive value perception but weighs on short-term profitability. Strategic emphasis on differentiated menu offerings in chicken and beverages aligns with segment gains and consumer demand shifts, and digital activations, such as the MONOPOLY campaign, are contributing to higher customer engagement metrics. Committed capital allocation policies—evidenced by the 5% dividend increase announced in October and sustained development pipeline progress—underscore the company’s focus on long-term shareholder returns and operational expansion, despite an uncertain macro environment.

• Executives explicitly stated that inflation, particularly in beef, remains higher than historic norms and continues to pressure restaurant-level margins, with commentary referencing the current year and Q3.
• Digital and marketing initiatives delivered measurable business results, including incremental customer occasions and digital engagement via app campaigns in both the US and key international markets.
• Japan and Germany were highlighted for sustained market share gains in Q3 2025, with Germany achieving its best comp sales performance in two years, driven by localized menu innovation and value campaigns.

INDUSTRY GLOSSARY

• Extra Value Meals (EVMs): Bundled menu meal offerings at set price points, typically used to drive value perception and traffic in quick-service restaurants.
• IOM (International Operated Markets): McDonald’s reporting segment encompassing company-operated international locations, such as Germany, Australia, and the UK.
• International Developmental Licensed Markets (IDL): Segment of the business operating under franchise/licensing model in international markets, including regions like Japan and China.

Full Conference Call Transcript

Christopher J. Kempczinski: Good morning, everyone, and thank you for joining us. In the third quarter, McDonald's delivered global comparable sales growth of more than 3.5% with growth across all segments. In addition, for the second quarter in a row, McDonald's delivered global system-wide sales growth of more than 6% in constant currency, reflective of the increasing contribution from new unit openings. Our performance is anchored in our Accelerating the Arches business strategy and exceptional execution to provide the value our customers want for the food they love. Our combination of great-tasting menu innovation, exciting marketing, and reliable value and affordability succeeded in a highly challenged consumer environment and drove traffic share gains in a majority of our top markets.

In the US, we continue to see a bifurcated consumer base, with QSR traffic from lower-income consumers declining nearly double digits in the third quarter, a trend that's persisted for nearly two years. In contrast, traffic growth among higher-income consumers remained strong, increasing nearly double digits in the quarter. We continue to remain cautious about the health of the consumer in the US and our top international markets and believe the pressures will continue well into 2026. Delivering industry-leading value is part of McDonald's DNA. It's a foundational expectation of our brand to bring consumers through our doors and keep them coming back. And especially in today's difficult macro environment, it's more important than ever.

On our last earnings call, I previewed the close collaboration with our US franchisees to improve consumers' value perceptions of our core menu offerings. We heard our customers loud and clear on the need to deliver everyday value and affordability across their favorite items on our menu board. In September, we introduced Extra Value Meals or EVMs, a nationally advertised $5 Sausage McMuffin with Egg Meal and an $8 Big Mac Meal. And for the month of November, we're back with a $5 Sausage Egg and Cheese McGriddles Meal and an $8 10-piece Chicken McNuggets Meal. As we've said before, we will measure the success of our EVM program in two ways.

First, by gaining share of lower-income consumer traffic and second, by improving value and affordability experience scores. I'm pleased with how our EVM program is performing since relaunch. We're still in the early stages of the program and expect that the associated comp sales lift and traffic improvements will continue to build as awareness of the program increases over the coming quarters. Outside the US, our performance has remained strong with our large markets continuing to execute disciplined value menu and marketing programs. The value platforms we've had in place for several quarters in our IOM markets are resonating with our customers and continuing to improve value and affordability scores.

While these programs are working, we're remaining agile and will evolve them along with the needs of our customers. In Australia, for example, we locked in pricing on our McSmart Meal and Loose Change Menu value offerings for twelve months beginning in July, giving customers confidence and consistency in a volatile economic environment, helping us maintain relevance, drive traffic, and gain share. Time and again, we've proven that when we execute well, we outperform. And that has also been the case in Japan, where we have had market share gains for six quarters amid consistently strong performance.

Just a couple of weeks ago, I visited our restaurants in Tokyo and my firsthand experience confirmed the momentum supported by strong local marketing and innovation. This included several exciting Happy Meal campaigns that drove significant traffic and social engagement, highlighting the power of local relevance and the strength of our brand in connecting with consumers. Along with both value and marketing execution, our new category structure is laying the groundwork to deliver more menu innovation to support long-term growth. We've stood up dedicated teams with deep expertise and focused attention on the high-potential growth categories of chicken, beverages, and beef.

At the outset, we promised increased speed of innovation and scale, and we're already introducing new solutions into the system. Let's begin with beverages. A global category of more than $100 billion that's growing much faster than the broader IEO industry. In the US, we launched a beverage test in more than 500 restaurants across Colorado and Wisconsin in September. The product mix includes cold coffees, fritter refreshers, crafted sodas, and energy-based drinks. Initial results are exceeding expectations with strong satisfaction scores across the board, and the new beverage offerings are driving incremental occasions across different day parts as well as higher average check.

We're excited to see progress continue with the test as we deepen our understanding, drive innovation, and evaluate how these offerings could enhance our long-term beverage strategy in the US and abroad. Turning to chicken, a global category that is two times the size of beef and faster growing, we're driving good progress on our chicken offerings and continued to gain share in our top 10 markets in the quarter. In the US, we brought back Snack Wraps in early July, much to the delight of our most vocal fans at a nationally advertised price point of $2.99. The strong customer reception to this highly anticipated launch highlights the importance of pairing the right product with the right value proposition.

In our IOM markets, innovation standouts like the Chicken Big Mac in the UK and McWings in Australia exceeded expectations in the quarter. And we'll continue to go after the broader chicken opportunity by expanding our portfolio and pulsing in limited-time offers to meet evolving consumer tastes. Investing in these high-growth categories to align with consumer trends reinforces our broader strategy to drive guest count-led growth, win in taste and quality, and outperform competitors over the long term. With that, I'll turn it over to Ian.

Ian Frederick Borden: Thanks, Chris, and good morning, everyone. As Chris mentioned, McDonald's continues to deliver solid results by focusing on what we can control: value, menu innovation, and outstanding marketing execution while also driving consistent operational improvements across nearly all of our top markets. In the third quarter, global comparable sales increased 3.6%, despite a challenging consumer environment and a difficult QSR industry backdrop. In the US, comp sales increased 2.4% for the quarter, and we delivered another quarter of positive comp sales and guest count gaps to our near-end competitors. We started Q3 with the national launch of Snack Wraps, and the initial four-week window exceeded our expectations.

Snack Wraps were the most popular new chicken product launch in the US in recent history, with nearly one in five McDonald's customers purchasing a Snack Wrap during that period. Although easing somewhat after the exceptional initial launch period, Snack Wraps continued to deliver strong unit performance throughout the quarter, helping us gain share in the US chicken category and drive high levels of customer satisfaction. We're also continuing to see positive results from the McValue platform as we continue to evolve our value offerings. Mid-July, we introduced the Daily Double, a third meal deal, as a companion to the McChicken and the McDouble meal deals.

Overall, our McValue platform continues to serve distinct needs with little overlap of customers across the meal deal and buy one add one constructs, both of which continued to drive incrementality to the business in the quarter. And as Chris described, in early September, we brought Extra Value Meals back to the menu to ensure fans can find everyday affordable pricing across our menu boards. Getting the EVM formula right is important because they account for about 30% of our total transactions in the US. And so far, results have been in line with our expectations as we build consumer awareness and drive behavior changes.

While not a benefit to our third quarter results, in October, we reintroduced MONOPOLY in the US for the first time in nearly a decade. We're pleased with the performance. This year's campaign includes digital engagement through our app, similar to what we've done successfully in international markets. MONOPOLY is one of the biggest digital customer acquisition events we've ever had, driving downloads and registrations and reinforcing the role of digital in our broader strategy. With about 45 million 90-day active users in the US, we're excited about how MONOPOLY is helping more customers discover our strong value offerings available through our app.

Turning to our internationally operated market segment, comp sales were up 4.3%, marking consecutive quarters of growth above 4%, despite a challenged industry backdrop. Just like last quarter, each IOM market delivered positive comp sales growth led by strong performances in Germany and Australia. In Germany, we delivered our strongest comp sales results in two years, extending the trend of market share gains to nearly four years. Despite persistent industry traffic declines, McDonald's Germany has consistently outperformed driven by disciplined execution of our value menu and marketing playbook.

A standout in the quarter was the Taste of the World campaign, which showcased the global strength of the McDonald's brand by offering customers a curated selection of international menu favorites at their local German McDonald's restaurant. Taste of the World exceeded expectations and was complemented by an optimized mailer and strong local marketing, demonstrating our ability to deliver value and innovation simultaneously. In addition, it provided a campaign blueprint, which we plan to replicate across more international markets in 2026 and which is currently live in the UK.

In Australia, we're encouraged by the momentum that the new management team and our franchisees are building across the entire system as we've gained market share for a second straight quarter by executing a full suite of initiatives across value, menu, and marketing. And as Chris noted, we locked in value prices for twelve months starting in July, providing consumers with predictability and confidence. The launch of the Big Arch Burger and Breakfast McGriddles added excitement to the menu, while the return of MONOPOLY, now fully digital and available exclusively through the MyMaccas app, drove increased app downloads and registrations and contributed to digital sales growth.

In our international developmental license markets, comp sales grew 4.7%, led by Japan, which has delivered consistently positive guest count growth for nearly two years. In China, while near-term performance continues to reflect macroeconomic pressures, we remain confident in the long-term opportunity. Investing in the future, including adding a thousand new restaurants this year, we're also updating our Hamburger University in China, which we believe will support talent development and reinforce our commitment to the market. We have the right partner in place and remain confident in our ability to drive sustainable profitable growth over time. Turning to the P&L, adjusted earnings per share was $3.22 for the quarter, which includes a $0.04 benefit from foreign currency translation.

Adjusted earnings per share on a constant currency basis declined 1% versus the prior year, primarily due to the impact of a higher effective tax rate more than offsetting an increase in adjusted operating income. Total restaurant margin dollars were over $4 billion, a 4% increase in constant currency, and the first quarter in our history that we've surpassed the $4 billion mark. This performance is a true reflection of the strength of our business model in a pressured consumer and inflationary environment.

G&A increased versus the prior year quarter, reflecting $40 million of incremental marketing spend to support the relaunch of Extra Value Meals in the US, higher incentive-based compensation expense, and the timing of investments in our strategic transformation efforts and growth opportunities. Our year-to-date adjusted operating margin is 47.2%, up meaningfully from the 46.7% in the prior year period, reflecting top-line growth and strong execution across our system, including portfolio management. Below the operating line, our effective income tax rate for the quarter was 22.8%. We're projecting our full-year effective tax rate to be between 21-22%, which is tightening the range from our previous estimate.

We currently estimate that the impact of foreign currency translation on earnings per share for the fourth quarter will be about a $0.05 tailwind based on current exchange rates. As always, our estimate is directional guidance only, as rates will likely change as the year progresses. We're on track to deliver our financial targets for the year, which include the expected impacts from tariffs currently in place and remain focused on executing our Accelerating the Arches strategy to create long-term value for our stakeholders. With respect to capital allocation, our priorities remain unchanged. First, we invest in opportunities to grow the business and drive strong returns.

Second, we return remaining free cash flow to shareholders over time through dividends and share repurchases. In line with investing in the business, we believe our development pipeline is healthy, and we're on track to deliver our current year targets and our 50,000 restaurants globally by 2027. Whether through new restaurant openings, digital innovation, or menu enhancements, we're continuing to build a business that's positioned to win in any operating environment. With respect to capital returns, in October, we announced a 5% increase in our dividend, which is our forty-ninth consecutive year of dividend increases. That's a testament to the strength, resilience, and long-term value that McDonald's delivers and expects to continue to deliver to our shareholders.

Our ability to consistently return capital while investing in the business reflects the durability of our model and the confidence we have in our future. With that, let me turn it back over to Chris.

Christopher J. Kempczinski: Thanks, Ian. Each fall, McDonald's celebrates our Founders Day with reflections on the pride and passion that fuel our system. It's a privilege to recognize the everyday actions of our crew members, franchisees, and teams around the world. This year is particularly special given it's our seventieth anniversary. The resilience we've built across generations and geographies reminds us that our strength lies not just in our global scale, but in the local actions we take day in and day out to feed and foster communities everywhere McDonald's operates. Founders Day is also a time to look ahead to the next chapter of innovation, growth, and impact.

From our digital transformation to our commitment to value and affordability, we're building on our legacy in ways that matter most to today's consumer. We're doing it together as one McDonald's system. As we look to close out the year, our focus remains on executing what we can control. We're committed to delivering for our customers, especially in the challenging environment we navigate today. As is often the case, Ray had great advice for the moment we face today when he said, adversity can strengthen you if you have the will to grind it out. That's exactly what we're doing. With that, we'll take your questions.

Operator: Thank you. And as a reminder, if you are an investor, please press star 1 on your telephone keypad. We ask that you limit yourself to one question and requeue for any additional questions.

Our first question today is from David Palmer from Evercore.

David Palmer: Great. Good morning. Thank you. Wanted to ask you about the US business and perhaps the twin goals of improving company restaurant profitability in your system. Restaurant profitability but also improving the value perception gap versus your competitors in the US? You know, how can you achieve both? You know, I see some big AUVs for you guys, bigger than your competitors. Over $4.5 million for your company restaurants, and trailing restaurant margin is 11.5%. So it just could've could imagine higher margins than that and or perhaps even more of a value perception gap versus competitors.

And I have a feeling you have some ideas about how you're gonna grow that value perception gap and problem have your cake and eat it too and improve the restaurant margins over time as well. Love to hear about that. Thank you.

Christopher J. Kempczinski: Sure. Thanks, David. Well, I think that the formula for us is pretty well established over time, which is basically if you do what you need to do to delight your customers and serve them well, you're gonna attract more people to the business. And ultimately, that's gonna drive unit economics. And so I think for us, the focus is always on getting more people through the door, getting them to be buying larger items and ultimately that drives AUVs that you were talking about. I don't think that related to that it's at all in that improving value scores actually is also part of improving unit economics. And that's pretty much our focus right now.

You know, as we think about the full year, our US franchisees cash flow gonna be solid. The cash flow performance is gonna be solid. At the same time, that we're making these investments that we talked about on our last call around EVM. So, I think for us, the test of time, just get more people through the door, get them buying more, and everything seems to take care of itself. David, I just might add a bit to what Chris said.

And, obviously, what he said we've talked about a pretty consistently that we've we've got to get after guest count led growth, and I think nothing certainly from my lens has changed in terms of over time if we keep driving more volume and more customers through our doors, is obviously what we're always focused on. Nothing fundamentally has changed, I think, in our belief that we can drive margin accretion over time. I mean, I think, obviously, as you know well, a bit of the dynamic right now is inflation levels are still elevated from I think kind of what I would say are the historical norms, the pricing environment is challenging.

And so I think in the short term, you know, that continues to put pressure on margins. But again, I think we're focused on what do we need to do to meet the needs of our consumers in the environment and we certainly believe value and affordability is right. And if we get that right, that will pay off both in the short and long term as Chris just talked about.

Operator: Our next question is from David Tarantino from Baird.

David Tarantino: Hi, good morning. My question is on the value strategy in the US. And I believe, at least in the near term, you're offering some support or co-investing in that strategy, with your franchisees. And I was wondering, Ian, if you could kinda frame up what the level of that support looks like on an aggregate basis. And then, I guess, Chris, know, the second part of the question is you know, franchisees at some point will need to decide whether to continue this, or not without your support, presumably. So just wondering what how you would frame up the thresholds and how the thinking about what success looks like.

From a financial perspective? Do they need to see the traffic growth covering the de facto price investments? Or are they more focused on the metrics you mentioned, which is the value scores etcetera? So any thoughts around that would be helpful as well. Thanks.

Ian Frederick Borden: Hey, morning, David. It's Ian. Let me kick off and then I know will jump in and address the second part of your question. I think just from a support standpoint and maybe a bit of the framing, which I touched on in my opening remarks is you've heard Chris and I talk a fair bit about we felt really good about the value that we were offering both through the McValue platform and then through I think, the digital value that is available to members of our loyalty program. And if you put those two kind of components or programs together, that addresses about 40% of our total sales in the US business.

I think the purpose of the EVMs as we talked about in September is really that 60% of the menu which we would call kind of the everyday core part of our menu, the everyday core consumer, we felt we've had an opportunity to strengthen value in that part of our mix and EVMs represent about half of that 60% or about 30% of our overall portfolio in the US. So that was really important to address that, which was what we targeted with our EVM relaunch in September. Think to kind of support, there's a few elements of support that we're providing.

We've talked already about the $40 million of incremental corporate marketing support we provided to support the relaunch of EVMs in September. As you have will have seen already, we've got a rehit of that Chris talked about in his opening remarks in November. That's being funded through our normal advertising co-op in the US. The franchisees contribute to. So there's no incremental support behind the November activity. But we are providing a co-investment, from the launch in September through the 2025. At 50% of the kind of effective menu price reduction. And I think before we relaunched EVMs, the average discount level across the US business was about 11%.

Obviously, what we've targeted now with our kinda eight core VM core EVM meals, is a minimum discount level of 15%, and we're co-investing half of that reduction. That was about $15 million in September of McDonald's support, and we only had about three weeks of activity. And we expect that support in Q4 to be about $75 million. The last piece is Q1 2026 where we are continuing to provide a level of support, but it is different support.

That support is basically to address again, I'll call it a co-investment or 50% of the net negative cash flow impact that's associated with kind of the ECM reintroduction, and that is net of any lift in EVM units in individual restaurants. And because of the nature of that support, is different, we expect that to be significantly less in Q1 than what we're providing in Q4 this year. And then at the end of Q1, all of our core will stop and then with that, I'll turn it over to Chris to maybe kind of address part two.

Christopher J. Kempczinski: Sure. Thanks, Ian. So on value, as you know and as Ian just referenced, we put in place McValue Now it's it's well over a year ago, and we feel very good about our McValue platform. But what we also talked about was that consumers' value perception the number one driver of consumers value perception is actually what's going on in the menu board. It's not meal deals or offers. It's what's going on in the menu board. And we, along with our US franchise recognize that we had an opportunity there.

And that, you know, through kind of a number of things that had happened over time, we had gotten out of whack on EVMs and that was having a drag on our value perception. And so we went to the US franchisees with a path forward on how we're going to fix CVMs. The good news is the vast, vast majority, and I'm talking like 98, 99% of our franchisees recognize that we had an issue with EVMs that we needed to address.

And so the support that we came in with was to design to give them a pathway on how we can get this corrected but also protect on what was going to be, we knew in the short term, a drag. And that's the challenge when do some of the pricing actions that we're doing with EVMs is in the short term, it's going to be a drag until you can get the incrementality and then thereafter it becomes more sustaining. That's exactly what we did.

And what we expect is going to happen is that by the end of Q1, our system is going to be in a position here where actually gonna be a better decision to continue with the EVMs than it is to go back to where we were and create the problem all over again. So my expectation is that we're going to see the system continue with ZVM program because we've essentially bridged them through the most difficult part of this, and any move backward would actually I think, be self-defeating.

And maybe just a final hook to that, David, I just would say, I mean, again, when we put this in place in September, you heard us say this wasn't a short term This was gonna take at least a couple of quarters, I think, to kinda get the momentum and the lift and the repetitive activity that you need, I would just say we're obviously still early days in, but we're pleased with the progress, and we're on track to what we would have expected at this point, a few weeks post launch in September.

Operator: Our next question is from Dennis Geiger at UBS.

Dennis Geiger: Great. Good morning, guys. Kudos on the solid sales momentum in the US in the quarter and a and a tough backdrop. Was wondering if you could talk a little more about how you're thinking about the US sales trajectory looking out over the coming quarters, given a bunch of the key sales drivers that you identified, also kind of curious if you think sort of the underlying guest count baseline trends that you've kind of touched on in the past a bit, if you think that's improving for the business or sort of if those underlying baseline trends are set to improve in '26 if you feel good about the direction of those baseline trends. Thank you.

Christopher J. Kempczinski: Well, I'm not gonna get into trouble with giving any forecast. So I'm gonna let Ian handle that one.

Ian Frederick Borden: Morning, Dennis. Good question. Thanks. So let me touch on it. I'm sure Chris may wanna weigh in here at the end and just build. But I think what we would say is we feel, like we've had two kind of consistent consecutive quarters now of solid growth and we certainly feel like we're developing good momentum across each of our three business segments. I think as we've talked a fair bit about by obviously focusing on what we feel we can control in a continued challenging external environment. And I you know, I think we would say we certainly still feel cautious about the consumer.

And I think, I mean, you've heard from many others, obviously, the conditions still remain challenging in the US and we certainly see that as well in many of our top international markets. I think we saw that in the US kind of you know, get a little bit worse through Q3, and into the start of Q4. I'm talking about from an external perspective. But we certainly believe we're positioned to deliver another solid quarter of growth in each of our segments if we look forward to Q4. And I think that's anchored in and I think Chris talked about this last quarter, You know, in this environment, you really gotta be what we call three for three.

You can't be just strong on value individually or you can't just be having a great marketing execution quarter or a great menu news quarter. You got to get all three of those things to come together. And I think we feel we're doing a better job of really strong execution across the business. I think a little specifically maybe to get into the segment, I think in the US, we actually expect our comp sales growth will accelerate in Q4 versus the 2.4% that we delivered in Q3. And there's some obvious reasons for that. Obviously, we're lapping the food safety incident in last year's Q4.

We've had a decent start to the quarter based on MONOPOLY running in October as you heard us talk about in our upfront remarks. And we feel we've got a really good quarter of activity. Obviously, MONOPOLY in October, And then as you heard Chris talk about the kind of re hit of our EVM $5 and $8 price points in November. We also expect in the US that we'll see a notable step up in comp sales growth for those reasons in Q4. And expect, I think, our comp sales growth on a two-year stack base will accelerate modestly from the 2.7% that we saw in Q3 on a two-year basis.

On the international segments, I would say, I think we expect operating conditions across our top markets in Q4 will be pretty similar to what we seen the last couple of quarters. I think we believe that our Q4 comp sales in each of our international segments may decelerate sequentially. But that's largely a reflection of the lapping of more difficult prior year comparisons. And so on a two-year stack basis, we expect Q4 comp sales growth for both segments will accelerate meaningfully and sequentially. So that'd be a bit of a texture, I think, on the looking forward. I mean, I think you know, the external conditions remain challenging.

But I think you know, what we've really done, and you've heard us talk pretty real relentlessly about this just on value and affordability and then getting the power of great marketing and great menu news to come together is what's driving results. And I think to your point, what is giving us a positive baseline momentum in a difficult external environment And I think that's highlighted by some of the markets that we called out like Germany and Australia where the external conditions remain challenging. But I think our performance has been really, really strong. All I would add to that is, it's still a difficult environment and inflation proving to be sticky.

I mean, we're expecting to see there's going to be above average inflation next year. You've heard about others referencing what's going on with beef prices. Certainly, we're seeing very, very high inflation around beef prices versus what we're used to historically. And so I think all of that just, you know, keeps putting pressure on the industry and know, I referenced it in my opening remarks, but it's very much kind of how we're feeling, which is an environment where you've just got to grind it out.

I mean, that was an expression that Ray Kroc always loved to talk about, and it kind of feels like that sort of how we're having to operate, which is just grinding out and getting your oath and fortunately, our system is executing well. We've got good alignment with our franchisees, so I think we're gonna continue to do well, but I don't wanna minimize some of the pressures as well that exist in the industry today and that we're expecting to continue into next year.

Operator: Our next question is from Greg Francfort over at Guggenheim.

Gregory Francfort: Hey, thanks for the question. I'm wondering if you could maybe just give some more details on the beverage test that you've been running. I think you're you're running two kind of very different tests in terms of breadth of product and including the energy drink and not including the energy drink. And just what that sales mix looks like. And if there's any just consumer behaviors you can call out. Thanks.

I'll let Ian start and then I can I can add? But as we referenced, you know, we're we're pleased with it. We're we're not trying to make too much of an inference around you know, what it's gonna do from a comp standpoint. It's more about the operation and, I think, getting a sense of the mix. But I'll let Ian talk about that and then close out anything else.

Ian Frederick Borden: Yeah. Thanks, Greg. Good morning. We'll look I mean, we're running that test in a couple of regions in our US business. About 500 restaurants. I think there is a very to the different lineup. I mean, there's some overlap between what the product portfolio in both regions, but there's, also some differences. I mean, think as you've heard us talk about before, the beverage test is really, has come out of the learnings we had from the COSMIC standalone restaurants that we, stood up last year. You know, that test told us that we could get after the majority of the opportunity without creating an unmanageable level of complexity that would impact our ability to in the restaurant.

So I think there are a couple of purposes of the test. One is just to you know, gauge the consumer demand, the consumer reaction, the kind of feedback on the portfolio, one is obviously to test at a little bit greater scale, our assumptions on kind of the complexity that those port those lineups are adding to our business manageable. I mean, I think we've seen from a complexity standpoint what we expected, which is we're able to kinda manage that in the restaurants. Obviously, the purpose of any test is you're learning and adapting.

I think we seen a really positive consumer reaction both in the portfolio and kind of is it meeting the needs and kind of the on trend expectations for what consumers are looking for from a beverage standpoint. And so again, days and as Chris said, we've got more work to do, but I think we're certainly encouraged by the reaction that we've had to date.

Christopher J. Kempczinski: The only thing I would add is on this test, one of the things that we're also at is we're being very thoughtful and purposeful about where we price these products. And we have you know, a variety of different items, but we think the opportunity for us is to be actually able to bring value into this segment as well And so with our franchisees, we've been very thoughtful about where these products are priced relative to the competitors that would have similar offerings.

And I think what we're seeing here is, for us, should we roll this out nationally, being very disciplined on pricing and making sure that we're delivering value on these beverages versus the competitive set is going to be the way that we're successful in this segment.

Operator: Next question is from Sara Senatore from Bank of America.

Sara Harkavy Senatore: Great. Thank you. I just maybe two clarifications. The first is just on the high income traffic being up double digits, is that an acceleration from what you've seen, I guess, trying to figure out if there's kind of evidence of trade down happening now And then on IDL, I know you mentioned strength across all regions. But that China was still seeing some pressure. Does that mean China, the market was perhaps not positive? I feel like we've seen some signs of improvement. Being reported from other consumer companies. So I just wanted to understand if China perhaps is an exception in that region. Thanks.

Ian Frederick Borden: Hey. Morning, Sara. It's Ian. So let me try and touch on those, two things. I think high income consumer it's certainly not a change in trend. I mean, we've talked pretty consistently for quite a while now about the bifurcated consumer environment in the US, and I would just say that the Q3 data only continued to emphasize and maybe even showed that bifurcation I would call it extending because as we said, low income consumer was down in terms of visits to QSR. High single digit, and high income consumer was up high single digit. So that just, I think, is kind of extenuating that bifurcation.

Obviously, the whole point of what we're trying do with value and affordability is make sure we're meeting the needs of all of our consumers, and to continuing, obviously, to be well positioned on that. I think on IDL, I mean, again, I think on China, nothing new, I think, from what we've been talking about for several quarters. I mean, think the macroeconomic environment continues to remain challenging in the short term. We haven't changed our view on the midlong term opportunity and our confidence level. And I think as we said in the note, all of the geographic regions in IDL and I would include China in that, were positive at least from a comp sales standpoint.

Christopher J. Kempczinski: The only thing I would add on China, we're pleased with how the China business is performing. We're still gaining share there. There's just there's overcapacity in China and what you're seeing is you're seeing a delivery war that's going on there, is putting pressure on pricing. Pricing is down in that market because of what's happening, between kind of the three different delivery guys all duking it out there. And so I think that's it's great for consumers. It's putting a pressure on the business. But net, as Ian said, we're growing comp sales We're still on track with where we need to be on new units.

It's just it's it's a more deflationary environment in China than I think we would wanna see normally.

Operator: Our next question is from John William Ivankoe at JPMorgan.

John William Ivankoe: Hi. Thank you. You know, I like the way that you framed, know, Australia value as having, you know, giving consumers in that market predictability and confidence. You know? And I did wanna put that in the context of the US. You know, broadening the, you know, the typical EVM discount from 11% to 15% you know, does that give consumers price certainty across you know, that EVM platform? Obviously, it's 30% of your sales. It's very important, you know, whether it's local, regional, or national. Where consumers can come in and, you know, know that they, for example, can get a Big Mac combo meal at a certain price.

You know, do you think, you know, having specific price certainty you know, in the US you know, over time, you know, to achieve that predictability and confidence is something that perhaps you know, we can migrate the, you know, the brand to, obviously, with, you know, some exceptions, but, you know, move the move the brand more to kind of a sustainable national pricing type model on the EVM side.

Christopher J. Kempczinski: I think you're exactly right. That part of why we wanted to address the discount on the EVMs is because know, through a lot of our work over history, I think we've certainly conditioned the consumer to expect that there's going to be a certain amount of value that you get when you go and you buy a EVM item. And as we've talked about before, we had drifted a little bit away that from that.

And so the move that we did is very much meant to reestablish and then to the earlier question around whether we expect it to continue, we would expect it does need to continue because it's what the consumer expects, and I think once we've, you know, kind of gotten through sort of the medicine that you have to take for a couple quarters to get the incrementality, Once you've got that back in place, you don't want to lose it. So I think this was very much meant as an idea to give us that predictable value.

And then you're going to have the mValue platform that will pulse in and out with various deals and offers, and that's gonna just sort of be something that goes you know, and it evolves over time. But the EVM is that foundation along with being disciplined on just your regular menu boards.

Operator: Our next question is from Brian James Harbour at Morgan Stanley.

Brian James Harbour: Yes. Good morning, I guess to that point though, are you are you seeing yourselves take share across different income cohorts? I mean, you know, do you think that the value push has sort of worked? And then, I guess, you know, more at the higher end, do you think some of the digital initiatives, some of the other product stuff that you've done have you seen that be effective across different income cohorts?

Christopher J. Kempczinski: Sure. Well, we're gaining share with upper income, Ben. And as we referenced, income industry traffic is up almost double digit there. And even in that environment, we're gaining share with upper income. And I think there's a variety of things that go into that digital or marketing programs, the strength of the brand, all of those things are attractive to that consumer. So I think that's very much continuing. And then how we think about that over time, value certainly has a play. I think sometimes there's this idea that value only matters to low income, but value matters to everybody, whether you're upper income, middle income, lower income.

Feeling like you're getting good value for your dollar is important. And so you know, I think for us, continuing to do what we're doing with EVMs, continuing to make sure that our McValue platform is competitive. Those are things that benefit not just the low income consumer, but they also continue to attract that upper income consumer who is still looking for good value. They just maybe have more discretionary, dollars in their pocket that they can go spend.

Operator: Our next question is from Lauren Danielle Silberman at Deutsche Bank.

Lauren Danielle Silberman: Hey, thank you. I have a quick follow-up and then a question. On the high income side, fast casual has been a weaker segment this year, tends to lean a bit more higher income. Is there any evidence of share shift from fast casual into QSR from that higher income consumer? And then if you could just talk about what you're seeing across dayparts, I know you guys have talked about breakfast being weaker. Have you seen any pickup with the everyday value meals? Thank you.

Ian Frederick Borden: Well, morning, Lauren. It's Ian. Let me maybe just start with the higher income consumer, and I can, let Chris do the second part there. But look, I think as I said earlier, we've been talking about the bifurcated consumer in the US for quite a while, and we've been talking of, I think, about strength of the higher end consumer. So I don't think we've seen any fundamental change in trend with that consumer. I as you said, I know a number of others have talked about seeing some weakness there. I certainly, as Chris said, we're we can to gain share with that consumer.

And so I think as we've talked about a fair bit today, our goal is to make sure we're positioned strongly on value and affordability for all three consumer groups. I think we did a really good job on that from the McValue platform standpoint and the loyalty and kinda digital offer component. But as you've heard us talk about, we felt we were missing the strength of value that we needed on that core menu, the 60% EVM being half of that. So that's what we're now trying to address.

And you know, as we've talked about before, I think our unique positioning is that we've got the financial strength to make these types of investments, when maybe others are gonna have to you know, be a bit more defensive. So I think we're we're doing the right things for the consumer. And as you've heard both Chris and I say, I don't think we see any near term kinda change in the environment, and so we just wanna make sure we're well positioned to do as well as we can in a, you know, a kind of a continued external challenging landscape.

Christopher J. Kempczinski: And then on your breakfast question, we have talked about in the past how breakfast tends to be one of the more well, it tends to be the most economically sensitive daypart. It's it's an easy daypart to either skip the meal or to eat the meal at home. Breakfast continues to be under pressure, as a daypart. Industry wide, we're holding share in breakfast. So, you know, that it we're doing okay in that segment. But we are still seeing that daypart is under pressure. For the reasons that we've already talked about. And you know, when that changes, I think that goes with the broader macroeconomic things that we've talked about.

Operator: Our next question is from Jeffrey Andrew Bernstein over at Barclays.

Jeffrey Andrew Bernstein: Great. You very much. Thinking about that value push maybe from a 30,000 foot view. You know, I know twelve months ago with signs of a US economic slowdown, we assumed fast food broadly and McDonald's specifically would benefit on both ends of the consumer spectrum. Retaining the low income with value and perhaps seeing trade down from middle and upper income, Obviously, that didn't transpire for much of this year, but it seems like it's set up well as we look to 26. Wondering if you believe it's reasonable to assume that we could see this play out especially as you now have a more compelling value offer to bring back the lower income.

And you're lapping that weakness now. And on the other end, again, signs of middle and upper income perhaps being a little bit more vulnerable and trading down. So perhaps on a one year lag, but do you do you see that scenario playing out where you could actually benefit from both ends kind of converging back on the, on the quick service segment? Thank you.

Christopher J. Kempczinski: Well, I'd love that scenario to play out. I'm not gonna predict whether it does play out that way. I think what we've said and I would reiterate on this call is, you know, McDonald's, it's value is in our DNA. And we absolutely are gonna make sure that we are protecting our leadership position and value. And you've seen us take the actions where we felt like we had some opportunities there. We're not going to lose as a brand. We're not going to lose on value. And so, you know, what you outlined is maybe one scenario.

Again, that would be great if it played out that way, but if there is any opportunities for us, it's not going to be because we were off sides on value. I think we've learned our lesson on that, and, we're gonna make sure that we're set up well 2026 on that.

Operator: Our next question is from Andrew Michael Charles from TD Cowen.

Andrew Michael Charles: Great. Thanks. Ian, can you talk more about the U. McCoffco margin contraction in 3Q and help unpack as a bigger headwind this quarter was general inflation or customers seeking lower margin value. And also, if you could just touch on your outlook for beef within that response as well.

Ian Frederick Borden: Sure. Morning, Andrew. Look, I think, as you've as I you've certainly heard me say, pretty consistently, I mean, obviously, the kind of fundamental driver of margin growth is strong top line growth. And know, we see we need a certain let's call it, minimum level of top line growth to drive margin accretion. And while we had a good quarter in the US at 2.4%, would just say it wasn't enough top line growth in the quarter to offset some of the inflationary pressure we saw in areas like wages and food and paper costs.

So I think as you've heard both Chris and I talk about, I mean, we have no change in our view that we're going to be able to drive margin accretion and margin growth over time as we drive that top line growth. But obviously, continue to operate in an environment where sales have been a little bit more subdued and inflation has been a little higher than what I'll call kind of the historic norm. I think on food and paper, in the US, we've said this year we expect, kind of our basket of food and paper inflation to be in the low to mid single digit range for the year. Obviously, beef inflation is up.

A fair bit. I think the strength of our supply chain means our beef costs are, I think, certainly up less than most. The still elevated, but I think our basket of goods means we still, have confidence in that kind of low to mid single digit range. I mean, obviously, what trying to focus on, as we've talked a fair bit about today, is how do we make sure we've got that baseline momentum obviously, value and affordability across all parts of the menu is a really important component of that.

And so that's I think what we're focused on is kinda getting that stronger top line and growth in place, as we look forward And as we said earlier, certainly, we've had a decent start to Q4, and I think we're getting through things like our EVM relaunch, some of those maybe missing components back firmly in place.

Christopher J. Kempczinski: That concludes the call today. Thanks for joining us. If you have any follow-up questions or would like to set up a meeting, please send me an email, and we'll do so. Thanks again, and have a good day.

Operator: This concludes McDonald's Corporation investor call. You may now disconnect, and have a great day.

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