McDonald’s 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Pretty poor performance

” Let me start by saying that we are disappointed by our recent performance which fell short of our expectations. Global comparable sales decreased 3.3% for the quarter, operating income was down 14% in constant currencies and earnings per share was $1.09, a 28% decrease in constant currencies.”

We haven’t changed as fast as our customers

“In some of our markets the reality is that we haven’t been changing at the same rate as our customers’ eating out expectations or, more specifically, their expectations of us at McDonald’s. So we’re changing. And we’re changing aggressively as we refocus on building the business for the McDonald’s system and for our shareholders. The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers.”

customers want choices

“Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary inviting atmosphere. And they want choices; choices in how they order, choices in what they order and how they’re served.”

Focus on modernizing decors and enhancing convenience

“Our efforts to create this experience in our restaurants build upon the investments that we’ve already made including the Made for You operating platform, modernized decors and leading edge point of sale and mobile technologies, all brought together in a visible, tangible way to enhance convenience for our customers.”

If you have to do this, you’ve lost

“Conveying the facts and adjusting misperceptions about the freshness, quality and integrity of our ingredients appeal to our customers and supports the work we’re doing to offer greater menu choice.’

Tax rate contributed significantly to the poor earnings

“Let’s begin by reviewing the significant decline in third quarter earnings per share versus a year ago which was primarily due to four factors. The first was a much higher effective tax rate of 44.4%.”

Commodity costs rose

“For the quarter U.S. commodity cost rose 3% primarily due to higher beef and dairy prices. This pressure is expected to continue into the fourth quarter. As a result, our revised full year outlook for the U.S. basket of goods is an increase of 2.5% to 3%.”

We’re one of the only restaurants that Apple has a strategic partnership with

“We are also excited about the relationship that we have begun to cultivate the most recent of which was Apple Pay and we’re the only restaurant, as I mentioned, that will be able to allow consumers to leverage Apple Pay in the drive-through. And so and one of the only restaurant businesses that Apple has had a strategic partnership with”

We’ve tested everything in the innovation lab

“First of all you know anything that we would implement in an restaurant we have taken it require a bit of testing. So relative to create your taste has been through the innovation lab, the innovation center and the testing protocols”

We’re focusing on competitive pressure, which we don’t have to do too often

“one thing we do not do too often, Jeff, and you probably won’t hear us do too often, and that’s talk about for fact that our focus is now on competitive pressure. What we do is acknowledge it; they’re folks in the marketplace that are doing some solid things”

The whole QSR industry isn’t registering with millenials

“et me just broadly relative to millennial. If you look at the quick service restraint industry there is a decline relative to millennial usages of the quick service restaurant industry”

The problem is our value and food options

“the question is whether or not our value and our food options are resonating as strongly and so I believe that that is the fundamental basis of some of the challenges that we are having.”

MCD’s CEO says it’s really about customization not just integrity of food

“we believe that if you look at the broader market and you look at what customers are asking for, they are asking for transparency they’re asking to know what’s in the food, they’re asking for integrity of the food. There are cases and there are markets where organics are drivers at a higher level. But I would offer is that the highest level is more about their transparency, integrity and also the ability to customize and have what they want on a sandwich or a burger.”

I wont say CMG is right or wrong

“I know Steve I use to visit his first restaurant when we entered into an initial partnership back then when we were sharing the McDonald’s supply chain system which helped him as he move forward Chipotle. But I would not say Steve is wrong or right, I think each individual organization has to look at that and look at it through the eyes of the customers and what customers are asking them to deliver.”

If organics gets more trendy then we’ll get more aggressive there, but there are other focuses around the world too

“so I think you’ll see a lot of changes though, Howard, I mean if these things become even more large, even more trendy then that something clearly we’ll look even more aggressively at. But we do have markets around the world that focus more on organics we have markets that focus more on locally relevant products. France just finished up one of their launches and it was basically speaking about French beef; we talk about Australian beef over in Australia.”

Customers want real and fresh food

“Customers want real food and they want to make sure they understand that its real food and they want fresh food. So they want to understand the sources or the origin, they want to make sure that I know what’s it, where it came from and the integrity of those sources.

And so what we’re trying to do is more visually depict that both in our marketing, in our foods of question and even more importantly at the important movement of truth which is in the restaurants and for those of you visit our restaurants and been behind the counters you’re seeing the freshness and the quality of our produce. However ,not everyone has done and seen that and so we want to make sure that we’re transparent enough to do that many times real and fresh is also conveyed. “