McDonald's Corporation (MCD)

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McDonald's (MCD)

Q4 2010 Earnings Call

January 24, 2011 11:00 am ET

Executives

Jim Skinner - Vice Chairman, Chief Executive Officer and Chairman of Executive Committee

Cathy Martin -

Peter Bensen - Chief Financial Officer and Corporate Executive Vice President

Mary Kay Shaw - Vice President of Investor Relations

Donald Thompson - President and Chief Operating Officer

Analysts

Nicole Regan - Piper Jaffray Companies

Keith Siegner - Crédit Suisse AG

Jeffrey Omohundro - Wells Fargo Securities, LLC

Larry Miller - RBC Capital Markets, LLC

Matthew Van Vliet

John Glass - Morgan Stanley

Matthew DiFrisco - Oppenheimer & Co. Inc.

Michael Kelter - Goldman Sachs Group Inc.

Andrew Barish - Jefferies & Company, Inc.

Jason West - Deutsche Bank AG

David Tarantino - Robert W. Baird & Co. Incorporated

John Ivankoe - JP Morgan Chase & Co

Mitchell Speiser - Buckingham Research Group, Inc.

Jeffrey Bernstein - Barclays Capital

Joseph Buckley - BofA Merrill Lynch

Howard Penney - Prudential Equity Group

Gregory Badishkanian - Citigroup Inc

David Palmer - UBS Investment Bank

Presentation

Operator

Hello, and welcome to McDonald's January 24, 2011 Investor Conference Call. [Operator Instructions] I'd now like to turn the call over to this Ms. Cathy Martin, Vice President of Investor Relations for McDonald's Corp. Ms. Martin, you may begin.

Cathy Martin

Thank you, and good morning, everyone. With me on the call are Chief Executive Officer Jim Skinner; and Chief Financial Officer Pete Bensen; and Chief Operating Officer Don Thompson is also here for Q&A. Today's conference call is being webcast live and recorded for replay via phone, webcast and podcast. Before I turn it over to Jim, I want to remind everyone that as always the forward-looking statements in our earnings release and 8-K filing also apply to our comments. Both of these documents are available on our website at www.investor.mcdonalds.com. As are any reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. Now I'd like to turn it over to Jim.

Jim Skinner

Thank you, Cathy and good morning. I'm pleased to report our business growth continued in the fourth quarter and that 2010 was another strong year for McDonald's. We continue to build our business, grow our market share and strengthen our connection with the customer.

2010 marked our seventh consecutive year of positive comp sales in every area of the world, a feat that underscores the ongoing strength and relevancy of our Plan to Win business strategy. Global comparable sales were up 5% for the quarter and for the year. And while we don't like to single out weather, in December, we experienced a severe impact. It's always difficult to quantify it but our best estimates are that the December comp was negatively impacted by 5% in Europe and slightly more than 2% in the United States. But in all indicates that our underlying trends remain strong. Despite these conditions, December global comparable sales were up 3.7%.

In January, global comparable sales are expected to increase 4% to 5%. In constant currencies excluding impairment and other in last year's Redbox gain, operating income grew 6% for the quarter and 10% for the year. While EPS increased 13% for the quarter and 16% for the year.

Overall, the global economy is recovering slowly but it remains challenging and consumers are still cautious. We continue to succeed by understanding our customers and aggressively executing the right strategies of optimizing our menu with a range of consumer-driven offerings; modernizing the experience for our customers and crew through service upgrades and reimaged restaurants; and broadening our accessibility with more restaurants, convenient hours and outstanding value.

This is our system-wide focus on the Plan to Win and it's what helped drive our success around the world in 2010. It is this proven strategy and our underlying focus on the customer that will drive the business in 2011 in the years to come.

Looking at the U.S., comp sales increased 4.4% for the quarter and 3.8% for the year with operating income up 1% and 7%, respectively. These results were achieved despite a tough economy and slow growth in the informal eating-out market. We continue to grow share, outpacing the competition on comparable sales and we continue to achieve all-time highs for comparable guest count growth during the period, when the overall industry traffic was contracting.

We drove results with a strong focus on value, menu relevance and convenience. We benefited from our Dollar Menu at breakfast which has been in place for over a year now and has increased morning traffic. This addition to our traditional Dollar Menu offering has boosted our position as a value leader across all dayparts.

Our extended beverage program continues to bring in customers throughout the day and sales of our new fruit smoothies and frappes during the quarter continued to do well. This, coupled with the strong Lipton and hot McCafe offerings, including the additional caramel mocha, drove December McCafé units up 20% over last year.

U.S. also delivered results by featuring our popular pork products as well as our unique flavor, our famous McRib, which we offered for a limited time on a national level. Throughout the year, we featured our flagship products which offer great taste and value every day. December's focus on the Big Mac, Quarter Pounder with cheese and the Angus burger also added increased unit movement. And for the first time ever, we partnered with Wal-Mart for our annual monopoly promotion, resulting in a larger and more relevant price pool. Monopoly lifted sales of featured core products like Big Mac and McNuggets as well as high-margin smoothies and frappes. And it drove Extra Value Meal units by more than 15%.

Now as we begin 2011, we're excited about our latest new menu offering, oatmeal, which we launched nationally this month. This great tasting product is an example of how we are continuing to grow our nutrition profile and meet our customers' evolving tastes. Also this year, the U.S. will continue rolling out our new point-of-sale system which simplifies the order taking process, improves accuracy and allows the crew to provide better service our customers. It's currently in about a third of our stores and we plan to have it rolled out throughout the U.S. by the end of the year.

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