McDonald's Corporation (MCD) Earnings Call Transcript & Summary

Today's presentation contains forward-looking statements that reflect management's expectations regarding future events and operating performance. Forward-looking statements are not guarantees of performance and are subject to risks and uncertainties, including those described in McDonald's filings with the Securities and Exchange Commission. You can access these filings through the Investors section in McDonald's website. Forward-looking statements speak only as of today's date, May 22, 2024. Except as required by law, McDonald's does not undertake to update any forward-looking statements. McDonald's website also includes reconciliations of any non-GAAP financial measures mentioned in this presentation to their corresponding GAAP measures. At McDonald's request, today's meeting will be recorded. If you do not consent to such recording, please disconnect immediately.

Good morning, everyone. My name is Rick Hernandez, and I'm honored as your outgoing Chairman of the Board of Directors to welcome you to McDonald's Corporation's 2024 Annual Shareholders Meeting. Now let me now officially call this meeting to order. As I address you today, I do so with a heart full of gratitude and a sense of immense pride. When I met with Fred Turner nearly 3 decades ago to talk about joining the McDonald's Board of Directors, he painted a compelling vision of McDonald's that was centered on community and quality. It brings me immense pride to know that Fred's vision has not only been realized, but has expanded in ways that continue to inspire and drive us forward. Throughout my tenure and particularly in the last few years, McDonald's has navigated a landscape marked by geopolitical pressures and natural disasters to pandemics and macroeconomic volatility. And amid these global challenges, I'm proud of the ways in which McDonald's has excelled and grown. Our resilience and innovation have reinforced our position as a leader on the global stage as evidenced by our recognition as one of the world's most admired companies and ranking highly on industry list by Fortune fast companies and Kantar BrandZ. These achievements are a direct result of the hard work and dedication of our franchisees, suppliers and employees around the world or what we like to call our 3-legged stool. It's easy to drive by McDonald's restaurant and forget that what you're seeing is not a big global corporate entity, but instead a small business at work. Of the more than 40,000 McDonald's restaurants around the world, approximately 95% of them are owned and operated by independent local franchisees. And our connection to franchising goes deeper than simply being a model for business operations, it's a relationship. It has created tremendous opportunity and economic growth for thousands of small business owners worldwide. As we've learned when our McDonald's franchisees succeed, communities succeed, families succeed and our economies benefit. McDonald's partnership with its suppliers have also never been stronger, with initiatives underway that will keep McDonald's green, growing and position to lead for the long term. We're also making greater investments to create a workplace where people feel both safe and respected and empowered to develop and grow. We are ensuring that our business franchisees, restaurant crews and partners have the resilience, not just to survive, but to thrive in the face of change to come. As we look ahead, I'm confident in the strategic decisions the Board has made, particularly in recombining the roles of Chairman and CEO under Chris Kempczinski's leadership. In doing so, we are returning the Board structure model that served us well for the first 40 years of our history and is aligned with the practices of many leading global companies. The board has complete confidence that Chris' proven leadership and vision will undoubtedly enable him to guide McDonald's into this new era. As Chris steps into this new role, Miles White will assume the role of Lead Independent Director. Importantly, the Board's decision highlights a sustained commitment to strong governance. I'm also pleased Mike Hsu has been nominated to join the Board of Directors. Mike brings over 3 decades of experience in the consumer products industry and his insights will be invaluable as we continue to navigate the dynamic retail environment and drive further growth. Our Accelerating the Arches strategy has delivered a robust performance and shareholder value, continuing a strong history of returning capital to our shareholders. I am confident that McDonald's is positioned to thrive driven by a strategy that is as dynamic as it is ambitious. Before I turn the proceedings over to Desiree Ralls-Morrison, our Global Chief Legal Officer and Corporate Secretary, to guide us through the formal business of today's meeting. Let me express my deepest appreciation. It has been an extraordinary privilege to serve as Chairman. Thank you, everyone, for your trust, your engagement and your continued support of the McDonald's division. I look forward to witnessing the next great chapter of McDonald's story unfold guided with the same commitment to innovation, community and excellence that have always defined us. Desiree, the floor is yours.

Thank you, Rick. The Board fixed March 25, 2024, as the record date for determining shareholders entitled to vote at today's meeting. I have been advised by Broadridge Financial Solutions, our independent inspector of elections that a quorum of our outstanding shares is present to conduct today's meeting. Accordingly, we will proceed with the business of the meeting. A representative of Broadridge is present with us today as is the representative of our independent auditor, Ernst & Young. If today's meeting ends unexpectedly before the polls close, and if we are unable to reestablish the webcast within 30 minutes, the meeting may be adjourned to a later date or to a new date and time. In this case, we will make an announcement on the Investors section of our website regarding the details for reconvening and conducting the business of the meeting. The polls are open and will close following the presentation of the proposals. Shareholders of record or the proxy holders may now vote online. If you have not already voted your shares, please vote using the online ballot on the left-hand side of your screen. If you voted by proxy before the meeting, you do not need to vote now unless you wish to revoke or change your prior vote. As Rick mentioned, the meeting agenda, procedures and standards of conduct are in the meeting materials box on your screen. Here is today's order of events. The Chairman will introduce each proposal as well as the presenters of the shareholder proposals. Preliminary voting results based on the Inspector of Elections tabulation will be announced following the presentation of the proposals and the closing of the polls. Final voting results that are certified by the Inspector of Elections will be reported on a Form 8-K which will be filed with the SEC within 4 business days of this meeting and posted on our website. Following the adjournment of the formal portion of the meeting and Chris' remarks, I will facilitate a question-and-answer session pursuant to the meeting procedures and standards of conduct. Shareholders may submit a question by typing in the Ask a Question box on your screen and clicking the send button. Similar questions may be combined so that we may have time to answer questions on a variety of topics. Due to time constraints, we may not be able to answer all questions. Questions and answers relevant to the meeting matters that we are unable to address during the meeting will be posted to the Investors section of our website. I will now turn the meeting back over to Rick for the presentation of the proposals.

Thank you, Desiree. Our first item of business is Proposal #1, the election of 12 directors to hold office until the company's 2025 Annual Shareholders Meeting and until their successors are duly elected and qualified. The Board's director nominees who are with us today at the meeting are Anthony Capuano, Kareem Daniel, Lloyd Dean, Catherine Engelbert, Margaret Georgiadis, Michael Hsu, Christopher Kempczinski, John Mulligan, Jennifer Taubert, Paul Walsh, Amy Weaver and Miles White. Additional information about each director nominee is included in the company's proxy statement. For the reasons outlined in the proposal, the Board recommends that shareholders vote for the election of all 12 director nominees. The second item of business is Proposal #2, an advisory vote to approve executive compensation. For the reasons outlined in the company's proxy statement, the Board recommends that shareholders vote for the approval of executive compensation. The third item of business is Proposal #3, a vote to approve an amendment to the company's restated certificate of incorporation to limit liability of officers as permitted by law. For the reasons outlined in the company's proxy statement, the Board recommends that shareholders vote for the amendment to limit liability of officers. The fourth item of business is Proposal #4, a vote to approve other amendments to the company's restated certificate of incorporation to implement miscellaneous changes. For the reasons outlined in the company's proxy statement, the Board recommends that shareholders vote for the amendments to implement miscellaneous changes. The fifth item of business is Proposal #5, an advisory vote to ratify the appointment of Ernst & Young as the company's independent auditor for 2024. For the reasons outlined in the company's proxy statement, the Board recommends that shareholders vote for the ratification of Ernst & Young's appointment. As Desiree noted, a representative of Ernst & Young is present with us today and will be available to answer any shareholder questions during the question-and-answer session at the end of today's meeting. Now before I introduce the presenters of the remaining shareholder proposals, I'd like to remind everyone that in accordance with the stated meeting procedures and standards of conduct, each shareholder proponent will limit their remarks to a 2-minute presentation of their specific proposal. I would also like to remind everyone that for the reasons outlined in the company's proxy statement, the Board recommends that shareholders vote against each of the shareholder proposals. At this time, I call Mr. Thomas McCaney of the Sisters of St. Francis in Philadelphia, Pennsylvania, who will present Proposal #6, the advisory vote on the shareholder proposal requesting that the company adopt a specific antibiotics policy. Mr. McCaney, in 2 minutes or less. Operator, please open Mr. McCaney's line.

Thank you. Can you hear me?

Yes, we can.

Thank you. Good morning. My name is Tom McCaney, and I'm here to present Proposal #6 on behalf of the Congregation of the Benedictine Sisters of Born Texas and several co-filers, all members of the interface center on corporate responsibility. The proposal states shareholders request that McDonald's adopt an enterprise-wide policy to phase out the use of medically important antibiotics for disease prevention purposes in its beef and pork supply chains. Policy should include in the discretion of Board and management, global sourcing targets with time lines, metrics for measuring implementation and third-party verification. A policy meaningful to shareholders would include the establishment of a glide path for the phaseout inclusive of interim reduction targets and a commitment to annual disclosure of enterprise-wide antibiotic use, including reporting by shared class of antibiotics. This policy would realign the company with the World Health Organization's imperative to achieve absolute antimicrobial reductions by at least 30% to 50% by 2030. We ask all shareholders to vote in favor of Proposal #6. Thank you.

Thank you, Mr. McCaney. Operator, will you please close Mr. McCaney's line. The next item is Proposal #7, which was withdrawn by the shareholder proponent prior to today's meeting. As a result, Proposal #7 will not be voted on at today's meeting and any votes previously submitted on Proposal #7 will have no effect. The next item is Proposal #8, an advisory vote on shareholder proposal requesting additional disclosure regarding poultry welfare. At this time, I call on Karla Dumas of the Humane Society of the United States, who will present Proposal #8, again in 2 minutes or less. Operator, please open Ms. Dumas' line.

Good morning. Hello, can you hear me?

Yes.

Okay. Great. I'm here representing this proposal. I'm going to keep it very short actually and just say, we think the proposal speaks for itself and would refer anyone who wants more information on it back to the proxy materials. Thank you.

Thank you, Ms. Dumas. Operator, please close Ms. Dumas' line. The next item is Proposal #9, an advisory vote on the shareholder proposal requesting a congruency analysis on human rights. This time, I call on Paul Chesser, the National Legal and Policy Center, who will present Proposal #9 again with a 2-minute limit. Operator, please open Mr. Chesser's line.

Good morning. Since our China-focused proposal last year, McDonald's has doubled down on its expansion in China seeking to grow to at least 10,000 restaurants there by 2028. Also since then, media outlets have told them an increasing caution by U.S. companies over doing business in and with China due to increasingly unacceptable risks there. For the most part, during the last 12 months, only 2 major U.S. companies have resisted that trend and have instead intensified their growth in China. Those are Starbucks and McDonald's. Starbucks has had a terrible year and its share price is in the toilet. McDonald's stock performance hasn't been quite as bad, but it's still been poor. Thus, we are back addressing China and human rights with this year's proposal because we see a disparity between McDonald's claims to protect human rights and its actions. How can we take seriously McDonald's claim that it protects human rights when it is in a near equal business partnership with a Chinese government-owned business entity. The U.S. state department says the Chinese government is responsible for atrocities that include genocide, forced sterilization, forced abortions, organ harvesting and torture. How would this be any different than being in business with Adolf Hitler, or Kim Jong Un or Pol Pot? Pick your dictator. When we met to discuss our proposal a couple of months ago, I asked McDonald's Investor Relations to confirm that the company has at least 2 restaurants in Xinjiang, where the Uyghurs are enslaved and tortured. The company still hasn't answered me. The bipartisan Congressional Executive Commission on China says it is impossible for companies to conduct legitimate and accurate audits of operations to determine whether or not slave labor is embedded in their supply chains and operations. Members of the commission plan to demand the SEC require more specific risk disclosures from corporations on the issue. So be prepared McDonald's. Please vote for Proposal #9. Thank you.

Thank you, Mr. Chesser. Operator, please close Mr. Chesser's line this time. The next item is Proposal #10, an advisory vote on a shareholder proposal requesting additional disclosure regarding the company's corporate donations. This time, I call on Scott Shepard of the National Center of Public Policy Research, who will present Proposal #10, again with a 2-minute limit. Operator, please open Mr. Shepard's line at this time.

Good morning. The company has pretended that it already provides full disclosure of material charitable contributions, which is what our proposal seeks, but it surely doesn't do that, making its opposition statement an act of misdirection. If the company really does already provide full disclosure, it could have gotten our proposal excluded from this ballot by the SEC, but the company didn't even try. In our proposal, we identified the curious fact that as of August 2023, a review of an organization called Glisten's website had included McDonald's as a freshman partner on its corporate partnership page. By the time we submitted this proposal 2 months later, the McDonald's listing was gone. But despite the company's transparency pretense, nothing on its website demonstrates when it gave, how much, when it stopped, whether it stopped or anything. In fact, while it relies on its global compliance guidelines for charitable contributions policy as surety, for its oversight regime, it doesn't link to that policy, doesn't cite the policy and the policy can't be found on its website or by general web search. Considered altogether, this response diverges so completely from the norms of fiduciary duty owed to all shareholders when we put a legitimate question to our Board that the answer may all by itself constitute a breach, and it's certainly mis- and disinformation. This is all so important because of other corporate disinformation programs by pretending that organizations like Glisten which take extreme positions about things like parental involvement in children's lives are wholly noncontroversial just as they pretend that ESG is somehow nonpartisan. But this lie has blown up in the faces of too many companies already to be allowed to continue, and relying on an unavailable document to support a disinformational claim, McDonald's is clearly hiding something. Shareholders have a legal right to better treatment. Thank you.

Thank you. Mr. Shepard. Operator, please close Mr. Shepard's line. Next item is Proposal #11, an advisory vote on a shareholder proposal requesting and transparency report on the company's global public policy and political influence. I'm calling now on Ms. Amanda Barracca of Harrington Investments, who will present Proposal #11, again with a 2-minute limit. Operator, please open Ms. Barracca's line.

Thank you for this opportunity to introduce Proposal #11 on global political transparency on behalf of Harrington Investments. I am Amanda Barracca with corporate accountability. In prior years, this resolution has brought critical attention to investors' lack of visibility into the corporation's global political activities. In 2023, despite nearly 60% of its annual revenues coming from outside the U.S., the corporation continues to disclose less about its global activities than it does in the U.S. and other global North region. With limited view we do have of these activities, whether the company's recent efforts to slow progress on EU actions to reduce plastic waste, to donating more than $500,000 to congressional candidates in Brazil years ago, should tell investors all they need to know about why McDonald's must become transparent about these global activities. This year, executives argue that while profiting richly from its franchisee structure, the corporation does not support our request for the full disclosure of political activities globally. But these political activities have negative consequences for the brand and shareholder investment in it. Nowhere is this more stark than the recent case of a McDonald's franchise allegedly providing free meals to the Israeli military as they bombed and decimated hospitals, schools, masks and churches throughout Gaza and then weaponized access to food and water against displaced Palestinians who are working together daily to survive a genocide. After this, a Malaysian franchise then attempted to legally challenge the local Palestine Solidarity Group that alleged the company's complexity with Israeli atrocities toward Palestinians. If an entity bearing the McDonald's name as a franchise must be held to certain standards for food consistency and for presentation, then I trust that this corporation can also hold it accountable to basic standards for political disclosure and transparency. I urge you to vote yes on Proposal #11. Thank you.

Thank you, Ms. Barracca. Operator, please close Ms. Barracca's line. Again, the Board's voting recommendations for all proposals are outlined in the company's proxy statement. In summary, the Board recommends that shareholders vote for the election of all of the Board's 12 director nominees, for the approval of executive compensation, for the approval of an amendment to the company's restated certificate of incorporation to limit liability of officers, for the approval of amendments to the company's restated certificate of incorporation to implement miscellaneous changes, for the ratification of Ernst & Young as the company's independent auditor for 2024 and against each of the 5 shareholder proposals. At this time, I'll turn it back over to Desiree, who will lead the online voting process and provide the preliminary voting results.