McDonald’s (NYSE:MCD) Q4 2025 Earnings call February 11, 2026 04:30 PM ET Speaker13Hello, and welcome to McDonald's fourth quarter 2025 investor 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. At that time, investors only may ask a question by pressing star one on their touchtone telephone. I would now like to turn the conference over to Mr. Dexter Congbalay, Vice Presiden ...

Core Viewpoint - The restaurant sector, particularly McDonald's, is focusing on value messaging to attract consumers in a competitive economy, which may boost sales but has caused friction among franchise operators [1][6]. Group 1: Franchise Standards and Operator Sentiment - McDonald's implemented new franchise standards on January 1, assessing locations based on their pricing value, while allowing franchisees to set their own prices [2]. - The National Owners Association introduced a Franchisee Bill of Rights, emphasizing the right of franchisees to set prices independently without fear of repercussions [3][4]. - A survey indicated that all responding franchisees opposed the changes to national franchising standards, marking a historic consensus in the survey's history [7]. Group 2: Operator Relations and Performance Metrics - Franchisees rated their relationship with McDonald's corporate at an average of 1.37 on a scale of 1 to 5, a decline from the previous average of 1.71 [8]. - Despite tensions, McDonald's stock performed relatively well, increasing by 5% in a challenging year for the restaurant sector [9]. - Franchisees rated their business outlook for the next six months at an average of 2.58, the highest in 11 quarters, indicating some optimism [10]. Group 3: Value Strategy and Market Position - McDonald's has been effective in promoting value to quick-service consumers, outperforming other burger chains [11]. - Analysts expect the shift in value strategy to lead to significant earnings growth for McDonald's, marking the most meaningful growth since 2023 [11].

Core Insights - McDonald's Corporation is implementing a comprehensive value reset focused on revamped Extra Value Meals (EVMs) to reverse two years of declining traffic among lower-income U.S. consumers [1] - The company aims to make value predictable and compelling to rebuild guest counts by 2026 [1] Group 1: Value Strategy - The relaunch of EVMs at $5 and $8 is a significant effort to repair value perception on the core menu, as previous pricing drifted away from consumer expectations [2] - Franchisees support the necessary changes, and McDonald's is co-investing through early 2026 to alleviate near-term margin pressure while traffic rebuilds [2] Group 2: Market Conditions - Early results show improving value scores and growing awareness, but management notes that momentum will take several quarters to fully materialize [3] - Macro challenges such as rents, food inflation, and childcare costs continue to pressure lower-income consumers, leading to a double-digit decline in QSR visits [3] Group 3: Future Positioning - McDonald's is entering 2026 with stronger value signaling, digital engagement through loyalty programs, and menu innovations, which are expected to support higher-income traffic gains [4] - If inflation moderates and value messaging scales as planned, McDonald's could stabilize and potentially increase guest counts during 2026 [4] Group 4: Competitive Landscape - Competitors like Wendy's and Burger King are also tightening their value strategies in anticipation of strained consumer spending in 2026 [6] - Wendy's focuses on its 4 for $4 and Biggie Bag bundles to provide price certainty, while Burger King emphasizes value in its "Reclaim the Flame" turnaround plan [7][8] Group 5: Financial Performance - McDonald's shares have gained 3% over the past year, contrasting with a 12.5% decline in the industry [9] - The current forward 12-month price-to-earnings ratio for McDonald's is 23.48, slightly lower than the industry's 23.64 [14]

Core Insights - McDonald's Corporation (MCD) is effectively executing its "Accelerating the Arches" strategy, focusing on strong marketing, a tasty menu, and value-added meals as key drivers for long-term growth [1] - The company faces challenges from a tough consumer environment, persistent inflation, and increasing competition in the fast food sector [1] Performance Overview - McDonald's shares have increased by 0.2% over the past six months, outperforming the Zacks Retail - Restaurants industry's decline of 6.1% [2] - Earnings have exceeded the Zacks Consensus Estimate in two of the last four quarters, with an average negative surprise of 0.4% [2] Earnings Estimates - The earnings estimate for 2025 has been revised down to $12.11 per share from $12.32 over the past month [3] - Ongoing economic pressures and competition are impacting stock performance, but operational efficiencies and strategic initiatives may support future earnings growth [3] Factors Supporting Growth - **Strong Brand Image**: McDonald's is one of the most recognizable fast-food brands, with global comparable sales rising by 3.6% and U.S. comparable sales increasing by 2.4% [4] - **Sales Growth**: The company achieved over 6% global system-wide sales growth in constant currency, driven by new unit openings [5] - **Digital Engagement**: Initiatives like the app-based MONOPOLY have significantly increased app downloads and user engagement, with approximately 45 million active users in the U.S. [9] - **Menu Innovation**: New menu items and value meals, such as Snack Wraps and Extra Value Meals, are enhancing customer interest and traffic [10][11] Challenges to Growth - **Margin Pressures**: Commodity inflation has negatively impacted earnings, with adjusted EPS reported at $3.22, reflecting a 1% decline year-over-year on a constant-currency basis [12] - **High Competition**: The fast-food landscape is increasingly competitive, which may adversely affect McDonald's operating margins and profitability [13]

Core Insights - McDonald's has refocused on its value proposition, acknowledging a previous loss of focus as a value leader and implementing strategies to address this issue [1][3] Sales Performance - In Q2, McDonald's achieved over 6% global system-wide sales growth in constant currency and nearly 4% growth in global comparable sales, driven by effective pricing strategies [2] - The chain reported positive comparable guest counts globally, despite a challenging industry backdrop [2] Value Strategy - McDonald's is enhancing its value offerings by introducing new Value Meals and reintroducing the Snack Wrap at a price point of $2.99, which is considered a key value price [5][6] - The company is focusing on value not only in the U.S. but also globally, responding to customer demand for affordability [5][6] Pricing Policy - A new rounding policy for cash payments has been implemented at some locations due to a shortage of pennies, where totals may be rounded to the nearest 5 cents [4][7] - This policy is part of a broader trend affecting many retailers, and McDonald's is working on long-term solutions with the federal government [7] Consumer Trends - A recent survey indicated that nearly 80% of Americans feel fast food has become a luxury, leading to reduced dining out frequency [8]

Core Insights - McDonald's is experiencing a decline in customer visits despite a year-over-year increase in U.S. comparable sales of 2.4%, primarily due to positive check growth [1] - The company is facing challenges with low-income consumers avoiding restaurants, a trend expected to continue into 2026 [4][5] Sales and Consumer Behavior - U.S. comparable sales increased by 2.4% year-over-year, but same-store customer visits dropped by 4% [1] - The launch of the "McValue" menu aimed at price-sensitive consumers has not significantly improved foot traffic [2] - A study indicated that 69% of U.S. consumers are eating at home more often, with 85% citing saving money as the primary reason [7][16] Pricing and Inflation Impact - Fast-food prices have increased by 39% to 100% from 2014 to 2024, outpacing the 31% inflation rate during the same period [5] - McDonald's menu prices for popular items have doubled since 2014, leading to more consumers opting to cook at home [6] Product Strategy and Promotions - McDonald's relaunched Extra Value Meals (EVMs) to attract lower-income consumers, targeting a minimum discount level of 15% [13][14] - The reintroduction of the Monopoly game increased consumer engagement, with 45 million active users in the U.S. [10][11] Challenges Ahead - Rising beef prices, which have increased by 51% since February 2020, are expected to put further pressure on the fast-food industry [12][17] - The company anticipates above-average inflation next year, particularly affecting beef prices [12]

Core Viewpoint - McDonald's is positioning itself as a value choice in a challenging economic environment, successfully attracting both higher and lower-income consumers through various initiatives [1][2][3] Group 1: Consumer Traffic and Income Segmentation - McDonald's reported a decline in traffic among lower-income customers, with nearly double-digit drops in the latest quarter, indicating a potential trade-down rather than increased spending [4][5] - Conversely, traffic from higher-income consumers increased, with industry data showing almost double-digit growth in this segment [5] - The company has introduced the Extra Value Meal (EVM), which has seen good success among lower-income consumers, accounting for about 30% of transactions [6] Group 2: Marketing and Menu Innovation - McDonald's is focusing on menu innovation and marketing execution, which includes the successful rollout of snack wraps and the relaunch of the Monopoly promotion after nearly ten years [9][10] - The company is offering value meals priced at $5 or $8, catering to consumers looking for affordable options [8] - The marketing strategies and new menu items are designed to keep consumers engaged and drive traffic, especially in a tough economic climate [10] Group 3: Competitive Landscape and Defensive Positioning - McDonald's is viewed as a defensive player in the consumer market, appealing to stressed consumers seeking value [12] - The company is expected to perform well in difficult economic times, with a focus on long-term growth and margin improvement [13] - Companies with healthy balance sheets and solid inventory levels are favored in the current environment, as they can better navigate potential economic challenges [15]

Market Performance - U.S. equities rebounded on November 5, 2025, with major indexes closing higher after a tech-led sell-off the previous day [1][2] - The S&P 500 rose between 0.4% and 0.9%, closing at approximately 6832 points, marking a 1.36% increase over the past month and a 15.23% year-over-year gain [2] - The Dow Jones Industrial Average advanced between 0.1% and 0.6%, while the Nasdaq Composite led the market with gains between 0.4% and 1.2% [2] Corporate Earnings and Stock Movements - Nvidia (NVDA) shares increased between 0.6% and 1.6%, and Alphabet (GOOGL) saw gains between 2.1% and 2.4% [4] - McDonald's (MCD) shares rose between 2% and 3.4% due to strong third-quarter sales driven by the return of Snack Wraps [5] - International Flavors & Fragrances (IFF) jumped 4.7% after exceeding profit forecasts, while Johnson Controls (JCI) gained after issuing a positive 2026 profit forecast [5] - Advanced Micro Devices (AMD) initially declined but closed up 2.5% after reporting strong quarterly results [5] Declines in Stock Prices - Axon Enterprise (AXON) fell between 9% and 11.9% after forecasting weaker profits than expected [6] - Live Nation Entertainment (LYV) dropped 7.8% following disappointing results, and Palantir Technologies (PLTR) continued to slide, falling another 1.5% to 3.4% [6] - Pinterest (PINS) plummeted almost 22% after missing earnings estimates, while Humana (HUM) tumbled between 6% and 9.5% after its third-quarter results [6] Upcoming Earnings Announcements - Notable companies scheduled to report quarterly results after market close include Qualcomm (QCOM), Applovin (APP), and DoorDash (DASH) [7] Economic Indicators and Federal Reserve Outlook - Key labor market indicators, including JOLTs Job Openings and Initial Jobless Claims, are set for release on November 6, 2025 [8] - The Federal Reserve's next FOMC meeting is scheduled for December 9–10, 2025, with a 65% chance of an interest rate cut anticipated [9] Bond Market Activity - Treasury yields rose, with the 10-year Treasury yield climbing to 4.15% from 4.09% [10] - The ongoing government shutdown has limited official economic data, increasing the importance of private sector reports [10]

Core Viewpoint - McDonald's Corp. is experiencing a decline in U.S. consumer spending, particularly among lower-income customers, due to rising costs of necessities, which has led to a decrease in restaurant traffic from this demographic [1][2][5]. Group 1: Consumer Spending Trends - CEO Chris Kempczinski indicated that restaurant traffic from low-income diners has been declining at a nearly double-digit rate for almost two years [2][3]. - The decline in spending highlights the impact of inflation and high living costs on households with limited disposable income, forcing them to cut back on even affordable fast-food options [4][5]. Group 2: Company Strategies - To counteract the slowdown in consumer spending, McDonald's has implemented menu promotions and value offerings, such as the return of Snack Wraps and Extra Value Meals, aimed at attracting budget-conscious diners [4][5]. - The company believes that value is important across all income levels, not just for low-income consumers, as everyone seeks good value for their money [5]. Group 3: Economic Outlook - McDonald's anticipates that the challenging consumer environment and financial pressures on consumers will persist well into 2026, citing high costs of housing, childcare, and food as significant factors [5][6]. - The company is balancing the need for affordability with profitability as it navigates the broader consumer weakness and spending power divide across the U.S. [6].

Core Insights - McDonald's reported a 2.4% increase in US same-store sales for the third quarter, surpassing estimates of 1.9%, attributed to a larger average check despite the ongoing "value wars" in the fast-food industry [1][3] - The company experienced a net income of $2.28 billion, or $3.18 per share, which is an increase from $2.26 billion year-over-year, although earnings per share fell short of estimates at $3.22 [4][5] - Revenue rose 3% to $7.08 billion, slightly missing estimates of $7.1 billion, with expectations of continued economic concerns affecting customer spending into 2026 [7] Sales Performance - Same-store sales globally increased by 3.6%, reversing a decline of 1.5% from the previous year, with international markets showing strong growth [1][10] - In international operated markets, same-store sales rose 4.3%, while the international developmental licensed markets segment saw a 4.7% increase, driven by growth in Japan [10] Consumer Trends - The company noted a bifurcated consumer base, with traffic from lower-income consumers declining nearly double digits, while higher-income consumer traffic grew nearly double digits [4][10] - McDonald's is focusing on value meals to attract cash-strapped consumers, reintroducing items like Snack Wraps at a low price of $2.99, which became popular quickly [8][11] Future Outlook - The company is optimistic about future sales growth due to the return of Extra Value Meals and promotional deals, although it may face easier comparisons due to last year's E. coli outbreak impacting sales [11]