Hello and welcome to McDonald's July 26, 2016, 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. I would now like to turn the conference over to Mr. Chris Stent, Vice President of Investor Relations for McDonald's Corporation. Mr. Stent, you may begin.

Hello, everyone, and thank you for joining us. With me on the call are: President and Chief Executive Officer, Steve Easterbrook; and Chief Financial Officer, Kevin Ozan. Today's conference call is being webcast live and recorded for replay by webcast. Before I turn it over to Steve, I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments. Both documents are available on www.investor.mcdonalds.com, as are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. And now, I'd like to turn it over to Steve. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Thank you, Chris, and good morning, everyone. Midway through 2016, I'm encouraged by the progress we've made in turning around our business and the way we've challenged legacy thinking, acted with greater urgency, and shared successes more quickly across markets. These actions underlie the positive momentum that continued in second quarter, marking four consecutive quarters of positive comparable sales growth across all segments and franchisee cash flows at all-time highs in many markets. More specifically, global comparable sales increased 3.1% for the quarter. Operating income was up 3% in constant currencies, and earnings per share was up 1% in constant currencies. Excluding the impact of the current and prior year strategic charges, earnings per share for the quarter was up 13% in constant currencies. As we enter 2016, we expected quarterly results to be variable throughout the year. Our top-line performance in second quarter, while positive, reflects slower growth, due, in part, to challenging conditions in several countries. I'm encouraged that we continue to win relative to our QSR competitors in key markets around the world. In the U.S., our comparable sales gap versus the QSR sandwich segment was…

Thanks, Kevin. We will now open the call for analyst and investor questions. [Instructions] The first question is from Brian Bittner of Oppenheimer. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Thanks for taking the question. Two questions, one on the U.S. industry and one on your guys own U.S. business; on the industry, your outperformance against the industry this quarter is very similar to last quarter, which suggests the entire industry saw a huge deceleration, around 350 basis points. So what do you believe, sitting in your seat looking at the United States, what are the two largest drivers of the softening in the IEO trend? And do you see it continuing into the rest of the year? And secondly, on your own business, when you look at lapping All Day Breakfast in the fourth quarter, how are you thinking about the ability to sustain positive trends here as you lap that? Is extending the All Day Breakfast menu enough or are there more initiatives required in your mind? Thank you. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Hi, Brian. So on the first one, on the industry, well, clearly, it's been fairly well documented on the consumer slowdown across most consumer segments, to be honest with you, through the second quarter. And therefore, we are very mindful of our competitive position, the competitive gap. So it was important to us that we maintain that competitive advantage and fought for market share. We're not immune from what's happening in the outside world at all, but nor are we letting that deflect our focus on what really matters to us and our customers. I think the general sense is there's a couple of things at play. I mean, first of all, there is a widening gap between…

Next question is from David Palmer of RBC.

Thanks. Good morning. Steve, you had some comments about improving consumer perceptions in most of your major markets. Does that include the U.S. and what measures are getting better? Where does the opportunity still remain to improve? And then which of your initiatives do you think are really going to help you get where you want to get with your brand, with the result for, I would imagine, being traffic getting better from here? Thanks. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Thanks, David. Yes, so if I was to be U.S. specific, I referenced earlier the YouGov latest poll on brand perceptions. We've made really encouraging progress. And I believe that's because as well as trying to drive the business in the immediate term, we've also made the investments and the commitments around food, food quality, sustainability, the employment proposition, where not only did we move pay for our hourly paid start, but also a far broader enhanced range of benefits, including training and education opportunities for them. And with a brand like McDonald's, everything you do communicates. So the better you move on every single consumer touch point, then the broader halo on the brand starts to improve. So we're encouraged. We've got plenty of plans to maintain that momentum, but it's nice to see it being recognized by consumers. Part of that comes out of the basics of running better restaurants, and we've maintained a 6% year-on-year improvement in overall customer satisfaction. When I look into the detail there, we've made the progress on the areas that the team had intended to make the progress. So we spoke in the past about an attention to order accuracy, particularly in the drive-thru. Our accuracy has improved. The quality of the food perception has improved. Friendliness…

Next question is from Brett Levy of Deutsche Bank.

Good morning. If you could give us a little bit more insight into how you're looking at the structural margins, especially in the U.S., as you've regained some of your lost footing, what do you think are realistic margin expansion targets? Assuming more modest same-store sales in the flat to up 2% or if you were able to reaccelerate to 2% or greater, how should we really be thinking about it, given the current labor and COGS outlook? Kevin M. Ozan - Chief Financial Officer & Executive Vice President: Yeah, thanks, Brett. It's Kevin. You saw in second quarter this year, we were able to actually grow margins 30 basis points in the U.S. with the 1.8% comp sales, which we were certainly pleased about. As you know, long-term margins are a top-line game for us. We need to grow comps in order to maintain and improve margins, but what we were able to do this quarter was effectively manage the restaurant profitability as well. So while commodity costs were more favorable this quarter, our management of what we call controllable costs, both on the food side and the labor side, was better this quarter than prior quarters. And so we're pleased that we're doing a better job of managing running the restaurant, but also managing the profitability of the restaurant. Going forward, we've always said that we need about a 2% to 3% comp in a normal inflationary environment. That probably hasn't changed much, and there certainly isn't anything structural that would prevent us from getting back to kind of where we were on high margins in the U.S.

Next question is from David Tarantino of Baird. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi. Good morning. I wanted to come back, Steve, to the commentary around speed of service. I think you mentioned that that had improved, at least from a perception standpoint, but could you give an update on where you are on that front? And it seems like such an important factor when you think about how much of the business goes through the drive-thru. What are the keys to improving that going forward? Stephen J. Easterbrook - President, Chief Executive Officer & Director: Yeah, thanks, David. You're absolutely right. I mean, the reality is the customer experience is critical in just our underlying business momentum. Speed of service has predominantly improved, largely because we've got the accuracy element of service far better. So we've enhanced the training, some of the operational procedures through the drive-thru. And you may have heard me talk about a program we called Ask, Ask, Tell, which is a way of really ensuring we both took and then delivered the right order day-in, day-out to our customers. Once you get your accuracy right, then the whole drive-thru lane just operates far smoother. We also made significant changes to the merchandising in the drive-thru, with more tailored and focused merchandising menu boards, which, again, just made it easier for customers to order and identify the products they want, but also easier for our teams to take and get right. So I think there's a lot of work that's gone on. The real devil in the detail, down to the font size on the order receipts to make sure our teams who are collecting the orders can gather the right items. But also, there's a lot of work we're…

Next question is from Nicole Miller Regan of Piper Jaffray. Nicole Miller Regan - Piper Jaffray & Co. (Broker): Thanks. Good morning. Wondering how do you benefit, or not, from the Summer Olympics. And is there anything you want us to be aware of in the third quarter relating to that for modeling purposes? Thanks. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Well, I mean, for us, there's a brand association with sports. We've been a long-term sponsor of the Olympics. So we have some fun and engaging initiatives going on, particularly in and around Rio and working with our partners down there, Arcos Dorados. I wouldn't say there's anything material that's going to impact our business trends. We'll have some fun with it in certain markets where there's promotional activity, where there's tie-ins and allows consumers to get a little closer to it. And you can expect to see us with a little piece of that across the U.S. as well, but I wouldn't see it materially impacting our business one way or the other. It's just a brand reinforcement that we're committed to, to global sport to supporting participation at local community levels, just like we are with football or soccer around the world with our FIFA partnership.

Next question is from Andrew Charles of Cowen. Andrew Charles - Cowen & Co. LLC: Great. Thank you. Given the 3% pricing in the U.S. this quarter, which is at the midpoint of the food away from home inflation outlook, how should we think about your willingness to let price roll off? Steve, you called out the differential between food at home and away from home creating pressure on the top line. And if I can sneak one more in there, Steve, you called it out in your prepared remarks, but there was no mention in the release of the MONOPOLY promotion in April and the Angry Birds promotion in May. So is it fair to categorize June as the strongest month of the quarter for U.S. same-store sales? Stephen J. Easterbrook - President, Chief Executive Officer & Director: Well, I will speak to a couple and Kevin may want to add to that as well. When we look at the average check increases, so kind of the gap between top-line sales and our guest count momentum, I mean, clearly, price is a differentiator, but so is also the product mix, the bundling of items within each purchase. And one thing I would want to say is that when we have offers redeemed through the global mobile app, we see an average check increase. When we see breakfast items bought during the main daypart, we also see an average check increase. So part of it is not just price-driven, it's actually product mix and bundling-driven. I don't particularly want to talk to the monthly trends, because we've got away from that, so I don't think, honestly, that's very valuable. I guess what I would say across the quarter is there wasn't really a deeply meaningful trend one way or the…

Next question is from John Glass of Morgan Stanley. John Glass - Morgan Stanley & Co. LLC: Thanks. Just back on the U.S. sales, you're still in an early phase of a turnaround. So one could argue that your gap to the industry should still be widening and it didn't this quarter. I wonder – just a couple of questions, one is, do you think the change from a Dollar Menu to the bundled value had any adverse impact on transactions and the way people think about the brand? And clearly, as you're very well aware of, the fourth quarter and early 2017 comparisons are more difficult. Do you think just adding to the breakfast all day menu is sufficient to lap those or are there other things you're thinking about that are more profound, you just don't want to talk about today? I think you mentioned something about loyalty. Is this the time that a loyalty program would fit into the marketing plan, for example? Stephen J. Easterbrook - President, Chief Executive Officer & Director: Hi, John. I think on value, is there a trade-off in transactions having moved away from the Dollar Menu? I think there is, yeah, absolutely. We recognize that. That doesn't come as a surprise to us. What we wanted to do is work hard to still have a compelling everyday value proposition in our restaurants. And that can take the form of many things. So we've gone with the McPick 2 platform. And, again, just to step back and remind why we believe this is strong, is because it's grounded in what customers tell us is most important for them, which is choice and flexibility. We're not locking them into a certain price point, nor are we locking them into a certain selection of…

Next question is from Joe Buckley of Bank of America Merrill Lynch.

Thank you. You mentioned Pokémon Go in Japan; just curious if there are opportunities besides Japan for Pokémon Go. And then, wanted to ask as you lap last summer's wage increases in the U.S., what do you expect to see in wage inflation in the U.S. kind of in the back half of the year versus what you've seen in the first half of the year? Stephen J. Easterbrook - President, Chief Executive Officer & Director: All right. Joe, I'll take the first one, because I'm more knowledgeable about Pokémon than I am about the detailed financials. I'll let Kevin deal with that one. So our relationship with Niantic really has been driven by our Japanese team. It's a global phenomenon, clearly, and they're working really hard to roll it across a whole bunch of different markets around the world with, again, great success. We'll keep talking to any leadership partners around the world, so nothing else to say, no other speculation to add to it, but we're certainly enjoying what it's doing for our business in Japan at the moment. Kevin M. Ozan - Chief Financial Officer & Executive Vice President: Regarding labor costs, minimum wage, et cetera, you should expect to see kind of not a big bang like you would've seen in 2015 related to one significant effort, if you will, to raise wages at one time. We certainly are mindful of wage increases in various states throughout the country. One of the pluses that we've seen from the efforts that we've taken, as Steve mentioned, both on the wage side as well as the benefit side, is that our crew turnover is down year-over-year. So we've seen some benefits on the labor availability side, if you will, from the actions we've taken. I think it's fair to say labor pressures will likely continue in a lot of countries around the world, including the U.S., but there aren't any specific plans to have a one point in time where we significantly increase.

Next question's from Jason West of Credit Suisse. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah, thanks. Just a tactical question and then a bigger-picture question, just on the pricing that you guys quote, the 3% in the U.S., is that net of the discount that you're offering on McPick 2, like say, when it's a 2 for $5 for things like Big Macs or is that just the gross pricing? And then just bigger picture, I guess, as you guys step back and look at the impact that McPick 2 has had on the business and All Day Breakfast, do you get a feeling that there's initial trial there that's difficult to sustain, which is somewhat the way it sounds on the outside a little bit, or are you not really seeing that sort of dynamic playing out as much? Thanks. Stephen J. Easterbrook - President, Chief Executive Officer & Director: I'll take the second one, Jason. So McPick 2 and All Day Breakfast, they have both followed pretty much the curve that we would've expected. I mean, whenever you launch anything and put national support behind it, you have a launch volume. And then you kind of settle into a more ongoing run rate. I've got to say we're pretty happy with how both of those have played out. And they have continued into the out quarters, if you like. From the All Day Breakfast launch in October of 2015, we're now almost lapping that, that time and it's continuing to give us strong incremental sales, strong incremental margin and cash flows and incremental visits as well, and the same with McPick 2. So I think these are now platforms that are just going to continue to work hard for us at that kind of steady-state ongoing level. Kevin M. Ozan - Chief Financial Officer & Executive Vice President: And, Jason, that 3% is a gross price increase.

Next question's from Jeff Bernstein of Barclays.

Great. Thank you very much. Actually, just two follow-ups to what was mentioned earlier, one, Steve, you mentioned the market share gains and it seems like it's stabilized in the U.S. relative to last quarter. I'm just wondering whether you could talk a little bit about the largest international markets; whether you'd say based on whether you're looking at food at home or the informal eating out market, just however you look at it, trying to see whether there's any big winners or losers in your largest international markets. And then the other follow-up was just for Kevin. You mentioned the return of cash, and I think we're all well versed in the bump in leverage and the big bump in the repo that you've done over the last 12 months. But with this three-year period being close to done, and now as we look out over the next, presumably, three-year period, is there any reason, at least directionally, to assume any meaningful change in that $30 billion, whether up or down? Or maybe what metrics would lead you to make that decision? Thanks. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Hi, Jeff. So when we look at market share certainly across our major markets, we look at both IEO, but also then QSR. And depending on your competitive set, they have different merits, depending on which country you're looking at. But if I was to take IEO, we have made strong gains, I would say, across in U.K., Australia, China and Canada. And we feel good about our position within the broader marketplace. Even more encouraging is in the nearing competition, the QSR market share, where we have made some substantial gains in U.K., Australia, China and Canada. And I think as part of the turnaround,…

Next question is from Jeff Farmer of Wells Fargo.

Thank you. Just a question on your longer-term operating income margin opportunity, so looks like your guidance points to franchise restaurant ownership moving to I think it's almost 95% by the end of 2018. I think you stand at roughly 83% today. You've seen dramatic margin expansion in the past, following some of these aggressive refranchising efforts. Going back and looking at – the model looks like in 2007 and in 2008, you did see some really, really impressive margin expansion, again, I think after you developmentally licensed and refranchised more than a couple thousand restaurants. So with that precedent, what operating income margin level – and again, I realize you're not going to give me a specific number or even a tight range, but when you guys move to a 95% franchise mix, how different do you think the operating income margin of McDonald's will look in 2018 as compared to what it looks like today? Kevin M. Ozan - Chief Financial Officer & Executive Vice President: Yeah, Jeff, it's Kevin. Couple things, one, I believe we expect to be 93% by the end of 2018, with 95% longer-term. So I just want to make sure everyone gets that. As you know, the way it works when we refranchise, we'll pick up franchise margin dollars. Effectively, we're swapping company-operated margin dollars for franchise margin dollars, and certainly then spending less G&A and capital to generate those franchise margin dollars. So as you state, that was certainly accretive to operating margin back historically when we've done that. We would expect similar – that we would also be able to improve operating margins going forward, based on the activity. As you indicate, we're certainly not going to throw a number out there, but, generally, one of the main reasons we're doing…

The last question's from John Ivankoe of JPMorgan.

Hi. Thank you very much. And maybe a little bit of a follow-up or maybe good timing from the previous question, it does look like you guys are choosing developmental licensing, perhaps even over conventional franchising as we kind of read what we read in the press and how you've discussed the business. So with that being said, there were a few different references to G&A, I think, by both Steve and Kevin in your prepared remarks. Maybe there's some commentary coming on the third quarter. The first G&A cut announced, I think, was $300 million and then it was $200 million. Is your mindset that there could be another type of G&A tranche to come out, perhaps as significant as the first two that you've discussed? And secondly, as we start to focus on free cash flow, especially as we get into 2018, are you prepared to help us think about what the long-term CapEx of a kind of a post-refranchised McDonald's would look like? Kevin M. Ozan - Chief Financial Officer & Executive Vice President: Yeah, John. Let me talk about the whole deal of developmental licensee versus conventional. So as we talked about last year, we effectively took a restaurant-by-restaurant and market-by-market approach to look at kind of the best way of franchising in our mind. And what you'll see is, and generally in our major significant mature markets, that's the U.S. and International Lead markets, you'll see more of the conventional franchising, which is what we do in the U.S. So you would have seen some more conventional franchising certainly in this quarter and there will likely be further franchising like that. In countries, certainly in certain parts of Asia and Europe, where either it's a little bit more volatile from an economic and political standpoint and/or a partner can help us accelerate growth and grow faster than maybe we're willing to put in capital right now, those situations, you will likely see us using that developmental license model that we've used successfully for many years in a lot of the countries. All of the transactions that we have planned right now were taken into consideration when we came up with that $500 million of G&A reduction. So the $500 million contemplated all of the transactions that we have kind of in our plans at this point. So none of those activities will, in and of themselves, drive further G&A reductions. That doesn't mean that we're not going to continue to look for efficiencies and run the business in a disciplined manner, but you shouldn't expect that because we complete a franchising transaction or anything along those lines that that would trigger automatically a further or additional G&A cut in addition to the $500 million.

We're near the top of the hour, so I'll turn it over to Steve, who has a few closing comments. Stephen J. Easterbrook - President, Chief Executive Officer & Director: Thanks, Chris. And, again, thanks, everyone, for joining us this morning. I want to re-emphasize our focus on putting the customer at the center of everything we're doing, from the food we cook to the conveniences we offer, to the service we provide. That mindset ignited our turnaround last year and continues to guide our decision-making. We're moving the right direction, with four quarters of growth, with growth across all four segments in each quarter. But there is more work to do. And that's precisely why we remain committed to executing our turnaround plan through the end of the year. I'm encouraged by the way we're creating a better McDonald's and excited about the opportunities ahead. And I'm confident we will continue to aggressively take actions to strengthen our business and reassert our leadership position as the modern, progressive burger company in the global IEO industry. Thanks to all of you, and have a great day.

This concludes McDonald's Corporation investor conference call. You may now disconnect.