Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

McDonald's Corporation (NYSE:MCD)

2013 Annual Shareholders' Meeting Conference Call

May 23, 2013, 10:00 am ET

Executives

Andy McKenna - Chairman

Don Thompson - CEO

Gloria Santona - EVP, General Counsel & Secretary

Tim Fenton - COO

Pete Bensen - CFO

Analysts

Operator

The information in this presentation contains certain forward-looking statements which reflect management’s expectations regarding future events and operating performance and speak only as of May 23, 2013. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in or underlying are forward-looking statements is detailed in the company's filings with the SEC, such as its annual and quarterly reports. Access our SEC filings by going to www.aboutmcdonalds.com/mcd/investors. Our website also includes reconciliations of non-GAAP financial measures we mentioned in our presentation if any to its corresponding GAAP measures. Those reconciliations maybe found at www.investor.mcdonalds.com.

Andy McKenna

Well, good morning. Good morning. Welcome to McDonald's Annual Shareholders Meeting. So in addition to everyone in this room, we are joined by others in the Grand Oaks Ballroom and those of you on our webcast. I am also pleased to announce that we have students from [Ariel Academy] and Saint (inaudible) Leader School here with us today. So welcome to all of you.

Now if you are here in person, if you have a copy of the agenda for our meeting today and information about our procedures. With me on stage are President and Chief Executive Officer, Don Thompson; General Counsel and Corporate Secretary, Gloria Santona; Chief Operating Officer, Tim Fenton and Chief Financial Officer, Pete Bensen. Now Don Thompson will detail McDonald’s performance and plans in a few moments, following the business portion of the meeting.

The Board in its oversight role believes that Don and his leadership team are doing the right things to move McDonald's forward in today’s environment and you can be assured you’re your Board continues it's commitment to new corporate governance and management oversight. Our Board is comprised of a diverse independent minded and experienced group of business leaders. All of whom remain committed to representing you and enhancing shareholder value.

So I am now pleased to introduce the Board of Directors to you. As I introduce our individual members, please hold your response until everyone has been presented. In addition to Don Thompson and the Directors are, Susan Arnold, Former President of Global Business Units of The Procter & Gamble Company; Rob Eckert, Former Chairman and CEO of Mattel, Inc.; Rick Hernandez, President and CEO of Inter-Con Security Systems and non-executive Chairman of Nordstrom Inc.; Jeanne Jackson, President of Direct to Consumer for NIKE, Inc.; Rick Lenny, operating partner of Freidman, Fleischer & Lowe LLC, a private equity firm; Walter Massey, President of School of the Art Institute of Chicago and a nominee for election at this meeting; Cary McMillan, CEO of True Partners Consulting; Sheila Penrose, non-executive Chairman of the Board of Jones Lang LaSalle, Incorporated; John Rogers, Founder, Chairman and CEO of Ariel Investments, LLC and a nominee for election at this meeting; Roger Stone, Chairman and CEO of KapStone Paper and Packaging Corporation and a nominee for election at this meeting and Miles White, Chairman and CEO of Abbott and a nominee for election at this meeting. I would like the directors now please stand and be recognized, we really do appreciate your service and commitment.

Now we are also pleased to have with us today past directors Cap Adams and Don Lubin our recently retired Vice Chairman and CEO, Jim Skinner.

So I now call the business portion of today’s meeting to order. And I will turn to Gloria Santona, our Corporate Secretary to begin this session. Gloria?

Gloria Santona

Thank you, Andy. I have been advised that the quorum of the company shares outstanding as present to conduct the meeting. The polls are open and we will close at the end of the business portion of the meeting. Our order of events is as follows:

The Chairman will introduce each proxy proposal, and after all of the proposals have been presented we will ask if anyone has questions or comments on the proposals. If you have questions or comments on other McDonald's business matters please save them for the general discussion period later in the meeting. So as many shareholders as possible have an opportunity to speak, we ask that you limit any comments or questions to no more than one minute.

I also direct your attention to the rules of orders that are printed in your program. Following the presentation of all proposals the Chairman will ask for a motion and a second on all the proposals at one time. If you have not already voted your shares and need a ballot please raise your hand and [Usher] will provide one to you. If you have already submitted your proxy, you do not need to vote by ballot. Broadridge Financial Solutions, the independent inspector of election receives and tallies all votes.

I will now turn the meeting back to our Chairman for the presentation of the proposals.

Andy McKenna

Okay. Thank you, Gloria. So our first order of business is the election of Walter Massey, John Rogers, Roger Stone and Miles White as directors. The second proposal is an advisory vote on executive compensation. The third proposal is the approval of Ernst & Young as company's independent auditors for 2013. And the fourth item is an advisory vote on the shareholder proposal.

And at this time, I call on [Maureen O’Brian] who is here to present the proposal in two minutes or less; Maureen? Sorry Maureen is not here, so we will go forward and you still have an opportunity before we take the vote.

The fifth item is an advisory vote on the shareholder proposal. At this time, I call on [Martin Glotzer] who is here to present the proposal in two minutes or less, Mr. Glotzer?

Unidentified Speaker

Thank you, Mr. Chairman. For the record, my name is Martin Glotzer of Chicago; a long time shareholder in the company. We have a few proposals on the agenda presented by the management. We would like to discuss some of the proposals that the management has proposed, election of directors and auditors and etcetera. We can have the opportunity to discuss those proposals.

Andy McKenna

I think Mr. Glotzer, you are here to propose a certain proposal, and please go forward with that.

Unidentified Speaker

Yeah, I know I am going to propose it, but I want to know, I asked for point broader, we can be able to discuss the management proposals of election of directors.

Andy McKenna

Something you want to say about that?

Unidentified Speaker

Yes; I have two comments on the election of directors.

Andy McKenna

Go forward.

Unidentified Speaker

First point is, it appears to me is that the President of the Cincinnati Union’s [Backyard Company] since 1965. In my bylaws we have the provision for director of Americas. It would appear to me that here at McDonald’s we do not have in our bylaws the position of director of Americas. Recently we introduced a few of our former directors and it appears that if we had the proposal -- we had amendment in our bylaws providing for director of Americas, we would still have the services of the two former -- three former directors who have retired. So I have a request that the board of directors considered having the bylaws amended to provide for director of Americas.

Andy McKenna

Thank you, [Mr. Roger].

Unidentified Speaker

The second I’ve got is annual election of directors. I was a long time shareholder of Midway Games and I submitted a proposal to elect annual election of directors. The company was run by Mr. Sumner Redstone. Sumner Redstone agreed to the proposal. He had all the directors resigned at one time and had everybody -- all the directors at the same time elected on an annual basis. I’d say if it was good enough for Sumner Redstone around CBS and Viacom, it should be good enough here at McDonald’s.

Andy McKenna

Mr. Roger please, our directors are elected on an annual basis.

Unidentified Speaker

So several of whom are being elected at this time and all the others aren't elected at this time.

Andy McKenna

As their terms expire, as you may know last year we went away from a staggered board and [so elected all up to the annual elected in Sanford] and very limited amount of time now on your proposal.

Unidentified Speaker

Okay, thank you for your comments now about my proposal which is found on the proxy statement. Let the record indicate that I read the proposal and the reasons and I have one comment on the proposal. And I refer you at the time to refer to the recent shareholder proposal at JPMorgan Chase. One of the proponents been used the argument that they didn't have the funds available, the same amount of money that the company used to solicit no votes, the proponents had the same amount of money to solicit yes votes the results would be higher. And I believe here at McDonald’s that the proponents or shareholder proposals got the same funds available to solicit proxies as the same amount that the management uses to solicit no votes the results would be much higher. Thank you very much.

Andy McKenna

Thank you, Mr. Roger. Okay, the sixth item is an advisory vote on the shareholder proposal. At this time I call on [Besuda Desacan] who is here to present the proposal in two minutes or less. Besuda?

Unidentified Speaker

My name is Besuda Desacan, I'm representing the asking employees’ pension plan and the profile at the UAW Retiree Medical Benefits Trust. I hereby move stockholder proposal first asking the company to issue a report detailing human rights risk assessment process. Specifically if the process goes beyond asking a company to adopt the human rights policy and ask for information about how McDonald’s assess its human rights risk, our company points its demonstrated commitment to human rights through various company policies as a central argument against implementing this proposal. The company's standards of business conducts are valuable for its test but it’s very different from what this proposal at which is how human rights policy can be applied throughout the company.

Commitment to human rights in the form of principles is great but it reached to the question of how a company identified human rights risk and incorporates that knowledge to improve systems and practices. The company must assess the risk to shareholders value posed by human rights practices and their operations and supply chain in order to effectively translate human rights principles and into appropriate practices and manage that risk.

We note that McDonald’s has faced controversies over its human rights practices in its business operations in many countries. For example, McDonald’s came under fire in 2000 when press reports indicated that underage workers are manufacturing toys used in their Happy Meal and more recently company workers have participated in strikes and walkout for better wages and working conditions across the country. The company has acknowledged that boycotts or protests, labor strikes and the supply chain interruptions could adversely affect the company’s ability to execute on strategic plan. All of this increases the company’s exposure to human rights risk. We would like to note that proxy advisor ISH recommend that its clients vote for this proposal.

Finally, human rights risk assessment reporting would enable McDonald’s identify mitigate risk and would enable shareholders to understand the potential effect on shareholder value. We urge all stockholders to vote for this proposal. Thank you.

Andy McKenna

Thank you, Besuda. Final order, this is an advisory vote on the shareholder proposal. So at this time I call on [Tania Fields] who is here to present the proposal in two minutes or less. Tania?

Unidentified Speaker

Good morning. My name is Tania Fields. I am a single mother of four and an executive director of an organization called the Black Project. I am here to communicate the growing international concerns that have led to the resolution regarding how McDonald’s continues to contribute to the global epidemic of diet related disease. McDonald’s avoidance of meaningful change contributes -- continues to put the health of millions of children like mine worldwide at risk while also risking the investments of shareholders.

In the neighborhood of the Bronx where I live, food options are limited. My community is a food swamp, filled with cornerstones and fast food and lacking fruits and vegetables. McDonald’s happens to be the biggest alligator in that swamp. I have three McDonald’s within walking distance of my home, but it's not simply the saturation of fast food that is a problem, it is the deluge of fast food marketing to my four children and people in my community who have children.

McDonald’s is long and [embedded] children with marketing, seeking the kids on the brand in the early age and make them customers for life. Perhaps no way is McDonald’s predatory marketing more pervasive than in communities of color, where McDonald’s in my children school or the gymnast Gabby Douglas is on television or the demeaning website 365black.com.

This targeted marketing is everywhere and it is a recipe Mr. Thompson for disproportionate disease rate that my community and community of colors can no longer stomach. I am doing all that I can through my organization and my activism to feed my children healthy food and I am tired of McDonald’s targeting my children and my community at every possible turn with marketing designed to undermine my choice. So I am here to tell you that I am not loving it.

As a growing movement of mom’s around the world call in the corporation of stop interfering in our children’s health, as health professionals continue to urge you to stop driving the global academic of diet related disease, as communities increasingly seek policies of solutions to limit fast food influence, I urge McDonald’s for genuine action to address these increasing concerns about McDonald’s unhealthy products and marketing practices. Sorry four slices of apples and plastic packaging [all cut it].

In closing, McDonald’s can medicate its risk to shareholders and to long-term sustainability of the corporation by accepting the resolution and accepting whether this open scale of the corporation’s response keep pace with the growing movement demanding McDonald’s stop marketing the children. Thank you.

Andy McKenna

Thank you, Tania. (Inaudible) on the first proposal. If not, are there any questions or comments on any of these proposals. If not, is there a motion to move on all of these proposals?

Unidentified Speaker

I have a question. Since the proponents -- the first proposal wasn't here, what the action is the company going to take on that matter?

Andy McKenna

I think what we are calling -- we’ve got a call for vote.

Unidentified Speaker

Are we going to introduce that proposal even though the proponent isn't here?

Andy McKenna

It has been introduced.

Unidentified Speaker

Second.

Andy McKenna

We just call for the moment.

Unidentified Speaker

I will call for a second on it. So you see after all the shareholders who voted on it took the time to vote on it and so they should have an answer. Thank you.

Andy McKenna

Thank you, sir. You are very helpful. So your board of directors recommends the vote in favor of the election of all directors nominees, in favor of the appointment of Ernst & Young as auditor and in favor of management’s advisory proposal related to executive compensation. The board recommends the vote against each of the shareholder proposals and the reasons for these recommendations on shareholder proposal are outlined in the proxy statement. So if you are voting at the meeting, please complete and sign your ballot and motion to collect it.

Again if you already submitted your proxy, you will not need to vote by ballet, and the business portion of this meeting is concluded, proposed and now closed. And I will now turn the meeting over to Don Thompson for remarks on the big finals business and to lead the general question-and-answer session. And I also want to take this opportunity to thank Don for his strong leadership and especially for the brand. (Inaudible) for McDonald’s who [penalized] its integrity and always doing the right thing for our business and our customers. So ladies and gentlemen, Don Thompson.

Don Thompson

Good morning. First off Andy thank you very much for that kind introduction and to Jim it’s truly a pleasure buddy to have you here with us and it’s an honor. You were and have been such a tremendous leader of this brand for eight years and a partner to so many of us over 41 years so we appreciate everything that you've done, no one is still more proudly or fearlessly for this brand and the things that we've done and contributed to society as a whole and we look so forward on building on that legacy. So thanks so much for being here.

I also want to take this time to thank all of you for being here with us and for your investment in McDonald's. Its truly a privilege to be a part of brand McDonald's and to lead this great organization as we continue to work to become our customer’s favorite place and way to eat and drink and for so many of us this is truly a passion. This is what we do. This is our life. You've already met our Board of Directors and I would like to take this time also to personally thank Andy and all of our independent directors for their outstanding guidance and your insights, it’s truly appreciated.

I also want to recognize our senior management team; starting on stage with Gloria Santona, and Tim Fenton and Pete Bensen. In addition, Jose Armario, our Executive Vice President of Global Supply Chain, Restaurant Development and Franchising; Bridget Coffing, Senior Vice President and Chief Communications Officer; Rich Floersch, our Chief Human Resources Officer; Doug Goare, President of McDonald's Europe; J.C. Gonzalez-Mendez, Senior Vice President of Corporate Social Responsibility, Sustainability and Philanthropy; Dave Hoffman, President of McDonald's Asia Pacific, Middle East and Africa; Ken Koziol, Executive Vice President and Chief Restaurant Officer; Adam Kriger, Senior Vice President of Corporate Strategy; Jim Sappington, our Chief Information Officer and Jeff Stratton, President of McDonald's USA. I would like to ask those members of senior management who are here today to please stand and be recognized.

At McDonald's we are proud to serve 69 million guests in more than 100 countries around the world everyday. Our focus is singular; it’s on satisfying our customers’ needs around the world. We focus on operational excellence and our restaurants to deliver on the quality, the service, cleanliness and the value our customers expect at McDonald's.

At the same time, we are focused on remaining relevant as consumers expectations continue to evolve. We are developing great tasting new products and working to create a modern and a contemporary restaurant experience. We are able to achieve this balance through our three legged stool of owner-operators, our supplier partners and company employees.

Now world-class owner operators, one of the world’s largest networks of independent business people own and operate 81% of our restaurants around the world and while McDonald's is a global brand, we are also a local brand. Most of our restaurants are owned and operated by businessmen and women who live in the communities that they serve. In the United States 89% of our restaurants are franchised, and nearly half of our US franchisees, about 1,200 of them started as hourly employees in our restaurants. Today with us here, we have owner-operators representing 10 countries from around the world. I would like to ask all of you to please stand and be recognized.

In addition to our owner-operators, our outstanding network of suppliers around the world enable us to guarantee the delivery of safe, high quality products to our more than 34,500 restaurants each day and our communications and marketing agency partners help us responsibly and appropriately share our brand story and unique brand attributes with consumers globally.

The third leg of our stool is the 1.8 million employees, who support and work in McDonald’s restaurants helping us create connections with our customers and in their communities every day. They are tireless and passionate believers and ambassadors for brand McDonald's.

Nearly 60 years ago, our founder Ray Kroc made a statement about how we operate our business; that is as relevant today as it was back then. He said, take calculated risk, add boldly and thoughtfully, be an agile company. We continue to apply that same philosophy to our business and our operations today and while the informal eating out category was flat to declining throughout 2012, we continue to grow market share.

We increased global comparable sales by 3.1% and improved system-wide sales by 5% both in constant currencies. Every area of the world contributed to our performance with comparable sales up across each segment. We also grew operating income 4% and delivered 5% growth in diluted earnings per share, both in constant currency. Additionally, we returned $5.5 billion to shareholders through share repurchases and dividends. Our results are truly a testament to our resilient business model, our talented and aligned systems and our broad and deep experience in many different operating environments and like you will see in this commercial from Canada our customers have come to know us and to count on us all around the world.

Operator

The meeting will resume after this commercial break.

[Commercial Video]

Don Thompson

The potential of continue growing our brand and driving enduring profitable growth is significant, both in the short and the long-term. We will capture this potential by executing our plan to win and our three global growth priorities. Those priorities are, optimizing our menu with delicious and relevant food and beverages that balance our classic core favourites with new taste. Also modernizing the customer experience by upgrading every aspect of our restaurants from the look of our lobbies and our exteriors to improving the way we engage with our customers and by broadening accessibility to brand McDonald’s and being available when and where our customers want us at a price they can afford.

Let's talk with optimizing our menu; we continue to balance the strength of our global core products with our efforts to remain locally relevant across all categories day parts and price points. True to our values our markets are continuously learning from each other, proven many solutions are scaled from market-to-market especially in our four key growth categories of chicken, beef, breakfast and beverages. Hopefully, you all received the BR gift card for our new premium McWrap’s when you checked in. This delicious new product which originated in Poland has already expanded in 33 countries around the world.

Our beverage platform is another example of our learn share and scale philosophy. Mid-café specialty beverages started in Australia. The U.S. then adopted this concept and build on it with real fruits smoothies and (inaudible) and new flavors continue to be developed and shared like Canada’s Blueberry Pomegranate Smoothies which was just introduced in United States.

Breakfast also remains a significant growth opportunity that's why the U.S. introduced the Egg White Delight McMuffin earlier in this month and while you can now order any breakfast sandwich with Egg Whites. While new menu news is very important, we remain highly committed to our core classics, products like the Big Mac our world famous surprise hamburgers and cheese burgers and Chicken McNuggets are an important part of our menu that continue to account for about 25% of our total sales.

Our second priority modernizing the customer experience is all about ensuring that we keep pace with our customers’ expectations in our restaurant. We've already reimaged more than 60% of our interiors around the world and we expect to hit the 50% milestone for our exteriors by 2015. Modernization goes beyond reimaging to include the many other ways that our customers engage and interact with our brand, ways like mobile ordering and delivery, self-order kiosks just to name a few.

Our third priority broadening accessibility is about being available to our customers when and where they want McDonald’s, wherever they maybe. That's why we are opened longer and more restaurants and why we continue to strategically add new restaurants when and where appropriate. Last year we opened more than 1,400 new restaurants around the world. This year we plan to open between 1,500 and 1,600 restaurants in both established and emerging markets. We also continue to add multiple order points and cashless payment options to name just a few of the solutions that are helping make McDonald’s even more convenient around the world.

Another major aspect of our accessibility is affordability. In today's environment affordability is top of mind for consumers everywhere. That's why offering great taste for great value across our mini board is an important part of our accessibility strategy. In France, for example, the [class] croque sandwich and drink combination has enabled us to compete more aggressively with local bakeries.

In Australia, our Loose Change menu offers seven choices at various price points everything from an indulgently sweet creamy soft serve cone to a juicy beefy McDouble hamburger. And in the U.S. we remain committed to our dollar menu and keeping it relevant with new news like the grilled onion cheddar hamburger or the spicy chicken sandwich.

Let's take a look.

[Commercial Video]

The environment in which we are living and operating has changed. And we, as McDonald’s, have continued to change along with it. The McDonald’s of today and of tomorrow is an aggressive and an appealing leadership brand and while we continue to look to the future, we remain firmly rooted in our core values and in our commitment to making a meaningful difference in the communities that we serve. From the investments we make in developing today's work force and tomorrow’s leaders by providing training and career opportunities to our community outreach efforts and continue support for Ronald McDonald House Charities and our work across the broad spectrum of sustainability from energy to animal health and welfare. We take pride in what we are doing in the areas of food, sourcing, people, community and our planet and we are determined to keep doing more.

We have an incredible iconic brand that we can leverage to accelerate our growth and enrich the world and we are committed to doing this in a more focused and ambitious way as we serve good food through good people and by being a good neighbor, optimizing our menu, modernizing customer experience, broadening accessibility and continuing to do good. These are the McDonald’s top priorities. I'm energized by our opportunity to be a bright spot in our customers’ days and confident in our ability to grow our business as we become even more relevant and trusted all around the world.

Before we open it up for your questions, I want to acknowledge our honorary Chairman and first grilled man, Fred Turner, who passed away earlier this year. We've been so fortunate that Fred chose to dedicate his talent and foresight to our brand and we paid the greatest tribute to Fred as we deliver quality, service, cleanliness and value to our 69 million customers each and every day.

Operator

The meeting will resume after this commercial break.

Andy McKenna

We have Fred’s daughters, Terry and Paula and two of Fred’s grandsons, Jack and Steve Grasso here with us today. Please stand and let us recognize for all you have done.

I’d like to thank all of you again for your investment and your confidence in McDonald’s. We will now open the meeting for questions both here, in the room and from the ballroom. Please remember to limit your questions to one minute. This will ensure that we can accommodate as many questions as possible.

With that, we will take questions. I see on the left [Ms. Hannah].

Question-and-Answer Session

Unidentified Speaker

Yes. We have a question regarding nutrition at McDonald’s and it's from [Hannah Robertson].

Andy McKenna

Hi, Hannah.

Unidentified Speaker

My name is Hannah, and I am nine years old. (inaudible) that just aren't there, like when you (inaudible) or you have some special events because you have a cold, something that I don't think is fair is when big companies try to take kids into eating foods, that isn't good for them by using toys and cartoons characters. If parents haven’t helped their kids about how to eating then the kids probably believe that junk food is a good for them because it might taste good, then they are able to keep plugging their hands to give them massive, isn't it better that so many kids of my age and younger that are getting really sick with disease like diabetes and obesity that is really fat. It will be nice if you thought kind of treat kids and providing eat your food all the time, I made cooking videos with my mom that showcase that eating healthy can be fine and yummy. The way kids going to eating (inaudible) fruits and patties makes kids healthier, smarter and happier because that is true. Mr. Thompson don't you want to kids to be healthy so they can live and happy life.

Don Thompson

Hannah, thank you very much for your question and by the way it's good to meet you upfront. Couple of things Hanna. First off, we don't sell junk food Hannah. My kids also eat McDonald’s, when they were about your size to my son who is with us was a little bit bigger, he was a football player and also they cook with me at home, I love to cook, we cook a lot of foods and veggies at home. We serve a lot of foods and veggies at McDonald’s and are trying to sell even more with the apples that we introduced into the Happy Meal, we serve different foods and different variety, I was telling you a little bit earlier about things we would like to introduce even more, there is a affinity for them like kiwi on a stick and pineapples and we serve salads and we server those for dollar on a Dollar Menu and they are very affordable. And so there's a lot of things that we've done, our chicken nugget happy meals, fat free milk, both we also just changed the chocolate factory milk we are making a lot of changes at McDonald’s and we will continue to. I think it’s really great that you want to continue eating more fruits and more vegetables. I honestly hope even more kids do. I know that as my kids came up sometimes I had to nudge them a little bit more to eat some more fruits and vegetables but they did eat quite a bit of fruits and vegetables and that's what we served in our household as well. So thanks so much for the question. Next question?

Unidentified Speaker

I have a question here about McDonald’s in the hospitals and this is [Mr. Sri Ram], I'm sorry, I'm going to let him tell you his name and he is here by proxy.

Unidentified Speaker

Good morning. I am Sri Ram (inaudible) from Corporate Accountability International. Through our value of meal campaign more than 3000 health professionals have urged this corporation to stop marketing to kid and to address its role in driving diet related disease. McDonald’s has long placed stores in hospitals to create a false sense of health limit using hospitals as part of McDonald’s marketing strategy, but hospitals aren't buying it anymore. Most recently Truman Medical Center kicked McDonald’s out specifically citing health reasons. Healthcare providers will no longer participate in sending such mixed messages. Do you account for how well McDonald’s addressed growing brand liability as hospital after hospital protect their patients health and distance themselves from McDonald’s?

Don Thompson

Sri Ram thank you very much for the question; just to make sure that we are all on the same page we have about 25 restaurants in hospitals, out of 14,000 in the United States. In many of those hospitals we, actually there's many hospitals that have asked us to come back in or actually never to leave hospitals. So there is a lot of places that we are in and we are doing great business and have great relationships in those hospitals. In addition there's about 100 Ronald Rooms as we call them in many of the hospitals around the US and hospitals around the world. And in those hospitals we are also trying to take care of holistic family needs. So not just the selling of food but also through Ronald Rooms and through things we can do to take care of a whole child when they sit or are ill and their families can be there with them for treatment.

So we will look at hospital opportunities as they come up and if hospitals would like to engage with McDonald’s and we do have many of those that we’re in attending at this point in time. We won't always go, the business model doesn't some right if the relationship doesn't seem right but we will continue to look at that. In addition we continue to migrate our menu. We've added a lot more food, a lot more vegetables, we talked about many of those things, talked about things like smoothies and salads and beverages and believe me we would like to see even more, what's rather interesting is in many of the places even when we have all of those as customers come in and choose they may choose one day to have a burger, one day to have a chicken sandwich, one day to have it grilled, one day to have a salad. And we think customers should have their choice, but we will continue to work with hospitals when and where appropriate and when the relationships and the business model may. Thank you. Next question?

Unidentified Speaker

Our next question is regarding restaurant expansion and customer service and it’s from [Kendall Padist] from [Arial Capital Academy].

Unidentified Speaker

My name is Kendall. I'm with the Arial Community Academy and here's my question, are you planning on opening more McDonald’s around the world and how do you think it will impact the budget allowed for customer service?

Don Thompson

I'm going to ask Pete Bensen if he would speak to that one.

Pete Bensen

Yes, Kendall thanks for the question. We are going to open between 1,500 and 1,600 restaurants this year around the world, a large percentage of those are in emerging markets, but also in our developed markets and you can be assured as we open these new markets or new restaurants that we do a lot of training and recruiting of the staff so that when the restaurants open, we are delivering that exceptional on McDonald’s experience that everyone is expecting. Thanks.

Unidentified Speaker

I have a question here on nutrition and children’s health and this is Dr. Andrew Bremer and he is a proxy holder.

Unidentified Speaker

So my name is Dr. Andrew Bremer; I am a board certified pediatric endocrinologist, pediatrician and nutritionist. I am also associate professor of Annabel University School of Medicine, but I want to make clear that these are my own personal comments. I stand before you today as I did last year and as a physician and now a father to reiterate the concerns about the impact McDonald’s marketing is having on children’s health. My medical and public health colleagues the world over have repeatedly acknowledged the science I think McDonald’s-style fast food and the fast food practices to the decline in children’s health and McDonald’s has yet to make substitute changes; continuing to expose shareholders to considerable risk. And Mr. Don, as last year you said, give me the honor, I am not associating us with anything doing; I am not associating us to make something that do damaging to children. Now with all due respect, the entire corporation, the corporation is doing just that; given the highly visible and global backlash from health professionals, government officials and now parents, it's time for McDonald’s to probably stop marketing to children? Thank you.

Don Thompson

Thank you for the question, Doctor. As we talked about last year and as we you and I talked about on the side, we provide high quality food. We always have; its real beef, its real chicken, its real tomatoes, real lettuce, real fruit, real smoothies, real dairy, real eggs and we do it in a way that is also affordable. We are in many communities and we take their responsibility quite seriously and not only that, but I will make the same comment I made last year, we have 1.8 million employees, many of them are parents, many of them have their children come to McDonald’s if any of us believe we would doing damage to our own children, we wouldn’t work for McDonald’s and so I say once again, just do what the honor of parenting the same way you do and believing the fact that we know, when we take our children to McDonald’s I feel very safe and very confident it is high quality food. So we appreciate your concerns, we will continue to look at it and improve and sell even more fruits and vegetables. We moved that tremendously in the last four, five years. And we will continue to do that. Thanks so much. Next question?

Unidentified Speaker

Yes. The next question is on children health, and it comes from proxy holder, [Kia Robertson].

Unidentified Speaker

My name is Kia Robertson. I have been doing a lot thinking of what I should say because not a lot of parents get this opportunity. This generation is in trouble and we all need to come together to help them. Child’s obesity rates are sky rocketing and one of the biggest factor is diet. I believe that parents are ultimately responsible for the food that we feed our children and it gives us to educate them and give them the skills to make healthy food choices for themselves.

That said, I also believe that corporations like McDonald’s have a responsibility to start under mining parents by directly marketing to our children in ways that you know are deceptive, sometimes I think if you don't let your kids watch TV, they won't see your commercials but they may not realize is that you are getting around that and marketing a brand in school systems; as the corporation you might not have to think about your marketing but as parents and grand parents there must be a part that it’s just not right, you are a leader in your industry so you are also very well aware that the fast food industry is changing and in order to keep out immediate time for some genuine hinge at McDonald’s CEO Thompson, so you think it is good place to start to leave our children alone and let us parent advise what’s best for them? Thank you.

Don Thompson

Thank you for the question. Again I stated as a parent, I am glad that McDonald’s allows me to make the choices and I need to make. As a parent I know you do the same thing, globally we follow guidelines on how we responsibly communicate with children, we were part of the children food and beverage initiative years ago and still remain as part of that initiative as we market our business broadly and we are very careful; if you’ve ever watched a television watch, and I ask all of you watch television on Saturday, watch Saturday morning, I have done this throughout the year especially after last years meeting, I decided I want to watch TV on Saturday morning; and I have how our commercials come out, and when that marketing food to kids matter of fact we are not even marketing Ronald the way we used to, the interesting thing is Ronald’s been an ambassador for Roland McDonald's house charity; what we could do and what we have tried to do is sell even more apples and even more fat free milk and for those who want to work with us to try to help us to continue to do that and do it even more, I would love to see kids eat more fruits and more vegetables and we are trying to do that. Relative to schools we are not marketing in schools.

So if you see what's interesting is if you see some of the franchises that are here, they maybe doing a lot of things in their community, supporting schools and literally even things like that and you will see them doing that, but you won't see them in schools marketing McDonald’s food to children, we don't do that. The average person, average McDonald’s customer eats McDonald’s three to four times a month, that's out of 90 (inaudible). If even we were at the point that some of you have surmised today, that would not be the cause of some of the issues that you are talking about. I do agree we have some issues and we can't be part of the solution and we are doing that and doing I think our part plus some, but we are not the cause of obesity. We are not unjustly marketing “to kids”. Ronald is not a bad guy. He is about fun. He is a clown. And so I would ask you ought to let your kids have some fun too. Next question please.

Unidentified Speaker

I have a question here on animal welfare and it’s [Mr. Paul Shapiro] and he is a proxy.

Unidentified Speaker

Members of the senior management, Board of Directors, fellow shareholders good morning. My name is Paul Shapiro with the Humane Society of the United States. I have been to the shareholders meeting every year for the past eight years and often I have similar to some of the other questioners today encouraged the company to do better in my case to do better when it comes to the treatment of the animals used in the supply chain for McDonald’s. However last year after working together McDonald’s and the Humane Secretary of the U.S. jointly issued a press release in which McDonald’s admirably called unsustainable, the standard pork industry practice of confining pigs in cages, fairly larger than their bodies. These animals are unable even to turnaround for essentially their entire lives.

And further again admirably McDonald’s announced that it was not just calling this practice unsustainable but that it would require its pork suppliers to phase out this inhumane practice called gestation crate confinement of pigs. The company's announcement was welcomed by many including the Humane Society by an avalanche of positive publicity and I'm very proud to report that McDonald’s leadership on this particular issue caused a cascade of similar policies in your industry. Nearly everyone of your competitors followed your lead, Burgerking, Wendy’s, Denny’s Carl’s Jr., RB’s and more in fact since McDonald’s made this announcement in 2012 more than 50 other major pork buyers in the fast food industry, in the grocery chain business, in the food service business all adopted the similar policy that McDonald’s adopted last year making it clearer than ever to the pork industry that this cruel and inhumane practice has no future in its industry.

Don Thompson

Well, I absolutely love the fact that you've given us some accolade. I want to make sure I hold to that one minute piece we talked about.

Unidentified Speaker

I got you. Thanks for having my back and letting me finish. First, I want to say thanks to McDonald’s for its leadership and changing not just one supplier but changing an entire industry with its announcement and leadership. I think the company for that issue deserves a round of applause. My question Mr. Thompson is for you and I just want to ask why is it that you think these type of animal welfare initiatives are so important to McDonald’s.

Don Thompson

Well, first of all thanks for the comment and this will, the first comment I'm going to turn this over to Tim Fenton because he can kind of give you an update on where we are. As I've said we want to make sure that we are being responsible corporate citizen. We don't take our responsibility lightly in areas that we can make a difference bit also are effective for our customers, effective for the broader industry. We feel like these are things that we can look at doing.

The other thing is it's much easier to work with somebody when you are not calling you call name when they want to sit at a table and talk to you rather than talk about you and you all modified a couple of your approaches as well and we actually sat down and talk. And so I appreciate that. And with that, I'll turn it over to Tim Fenton. He will give you a little update as to where we are.

Tim Fenton

First of all, Paul, thank you for the acknowledgment. Why is it important? Well, we're an industry leader and we take that responsibility very seriously. We're committed and have been committed to improving the health and welfare of animals in our supply chain. It's a journey, it's not a destination. We've been proactively involved with animal welfare since the mid 1990s. So we continue to work on it, we continue to strive to be better and we take it very seriously because we're the leader to your points earlier, people look up to us and follow our leader.

Unidentified Speaker

The next question is regarding children’s health and it's come from [Michele Dwyer], proxy holder.

Unidentified Speaker

My name is Michele Dwyer and as a recent graduate, I am deeply concerned about the epidemic of diet related disease and the role of McDonald’s in driving it. (inaudible) entire generation of McDonald’s is fast losing brand appeal among as too often seen and often in the target of exploited marketing (inaudible) on an unhealthy food at a young age to make them customer for life. Especially a rate is McDonald’s targeting children of color. Children of color are already more likely to live in an environment where healthy food is less available. That they are more likely to develop diet related disease than their white counter parts should be no surprise considering how McDonald’s overwhelmingly targets them as product oriented marketing. Now only does McDonald’s use us practice of color such as Gabrielle Douglas, Venus Williams and LeBron James, it also invokes culturally and inappropriate stereo types and globally from hip hop culture to aggressively target children of color. Targeted commercials (inaudible) and culturally based partnerships are in place to sell more fast food. CEO, Thompson, I must ask when is McDonald’s going to end its aggressive marketing to communities of color?

Don Thompson

Michelle, thank you for your comment. This was kind of close to home. I wonder why that is. We do not, have not, will not, try to target people of color with some kind of subversive, I don't know I use to check, you put a lot of stuff together a hip-hop and splits and a lot of thing, we wouldn’t do that. I have been here 23 years and I know we wouldn’t do that and we don't do that and we won’t do that under my leadership. I grow up in the neighbourhood and believe me when I was growing up, we couldn’t afford the McDonald’s, my grandmother would take me by McDonald’s and she say I will take you home to make you a McDonald’s. I didn’t eat the McDonald’s, but I do know what else I ate and I will tell you that the epidemic of obesity particularly relative to my neighbourhoods and once I grow up in is not about McDonald’s.

There need to be more fresh foods guarantee. And if we can help with parfaits and smoothies and things we will do that, but I still cook (inaudible) at home. I grow up doing that. Now I still do that. It's not about McDonald’s alone. We can't be part of the solution. And I think that for McDonald’s and for leaders like us we have to do that and we will continue to do that. But if you accuse us of doing things we don't do, and having said with LeBron and with the William sisters, they don't view this is the brand that you view this as a brand that you view as and so we will continue to try to with them and continue to try to do things actually to even advance even further some of the changes that we can have and influence relative to eating habit.

But by the same token we are very proud of the person every now and then having order French fries or having hamburgers or having grilled chicken or having a salad, we have a broad way of menu items and we will continue to offer that and broaden that range as much as we can so that still fits operationally. So we do take the responsibility seriously, we will continue to look at improving, but we are not the brand that you describe and I hope that you will grow to see and understand it as you get to know McDonald’s at least the way that I have known it over the last 23 years. Thank you.

Unidentified Speaker

We have a question here on marketing and health, and this is [Ms. Hannah Swedberg] and she is the proxy holder.

Unidentified Speaker

Hello, I am Hannah Swedberg from Corporate Accountability International, tens of thousands of people who joined our Value the Meal campaign challenging you to put public health over short term corporate profit, a demand echoed by mom’s around the world who have urged you to end McDonald’s aggressive marketing of junk food to kids. For decades McDonald’s has profited richly at a staggering cost to our children’s health. Its strategy has been to undermine the efforts of parents whom the corporation called gatekeepers and who are working each day to see feed kids healthy foods. Well, these so-called gatekeepers are not loving McDonald’s marketing and this Mother’s Day launched their call to you, CEO, Thompson, to stop McDonald’s predatory marketing to kids. As a gift to parents everywhere will you and McDonald’s finally stop undermining parents’ efforts to protect their children’s health and stop marketing to kids a brand that is burdening a generation with chronic diet related disease?

Don Thompson

Thank you for your interest in McDonald’s. I mentioned this and I think the same point goes. The way you describe is not who we are. We are not predators. We have not done the things that you just mentioned. We will continue to run our business responsibly, appropriately, effectively and we will continue to reach out to try to always continuously improve. So thanks much for the question.

We do have a couple of questions I think from Grand Oaks. So I don't know who has those Angie would you want to make sure we make the folks at Grand Oaks feel a little bit of love. We don't want them to be left out?

Unidentified Speaker

The question would be in regards to egg whites and this is [Carol Nagel] and she is a shareholder. Mr. Thompson your egg white muffin is yummy. Will you introduce more healthy choices to your menu and when?

Don Thompson

Mr. Finn do you want to talk about what's happening with egg whites and menu?

Unidentified Speaker

Yeah, first of all thank you for the question. Personally, I love the egg white delight. What started out is something kind of appeal from a nutritional advantage on some of our products. It turns out that’s selling so much not because of that because of the taste is doing quite well as we can tell you can also get egg white at any one of our carriers for breakfast either biscuit or different muffins and so on. We are extending. We just launched our Chicken McWrap’s that are doing quite well for us that have a fresh array of different vegetables you can get it grilled and we will continue to look at what items I think resonate with our consumers with our testing, not only in the US but globally and we get some of our best ideas on these products from the markets that we have in 118 countries.

Unidentified Speaker

I also have a question from (inaudible) regarding our stock and it’s from a student at (inaudible).

Don Thompson

Pete get ready.

Pete Bensen

I am ready.

Unidentified Speaker

The question is do you feel our stock is currently undervalued and why?

Pete Bensen

That's a great question. You know a lot of things go into the valuation of the stock and it is as much art as it is science. So I think today investors are looking at the opportunity for our sound dividend and our safe dividend and the growth potential that we have all around the world. So I think today the stock is at a fair price and there is an opportunity for it to continue to go higher as we continue to perform as a global business.

Don Thompson

I know we have time for a couple of more questions. So gentleman over here is standing there for a while.

Unidentified Speaker

This question is on customer service and it’s from shareholders [Philip Johnson].

Unidentified Speaker

I wonder if you are going to improve the status of the points of sales areas where they have kiosks in the schools where the customers can go and do their own orders instead having a customer wait for the cashier to take the orders that way it eliminates the cashier from being up coming and it just make orders a lot better plus also eliminate long lines where people could just go up pay the cashier and get their orders and wait for their while they are waiting and also as far as the McDonald’s I think that McDonald’s food service is a lot better versus some restaurants where you go get load of biscuits or get double patties of chickens and stuff like that. So like the customer service as far as food is a good. The customer service for the employees, to their customers should be a little more focused on.

Don Thompson

Thanks very much. Tim, do you want to talk a little bit about service options?

Tim Fenton

Yeah. First of all, thank you. A good student of our industry, what you are talking about is we call it dual point service that you are moving to in U.S. and throughout many countries and U.S. (inaudible) service has always been a stable teller for us at McDonald’s. We continue to move forward and open new restaurants and migrate to what you describe a dual point we order and then move to the side and some represents us, we find it more personal. We find that consumers find it faster and we find it's more accurate. So we will continue that, we continue to strive and enhance our service not only in the U.S. but globally on some of these great initiatives that we're implementing.

Don Thompson

We will take two more questions.

Unidentified Speaker

I have a question on the good that McDonald’s does and this is [Mr. Robert Liking] and he is a shareholder.

Unidentified Speaker

I don’t necessarily have a question, but I have a statement. I know my school (inaudible) McDonald’s does because he has got only the pancake better, this patties and (inaudible) goes for the pancake breakfast, which one is school makes plenty of them and also I know other schools better said off with (inaudible) which you guys give a fair percentage of your profit to the schools and I know also that the McDonald’s had benefited many families across the world to so they can have (inaudible) the hospital where their parents being treated and I am only switching some of the good McDonald’s does, so I just want to say thank you McDonald’s.

Don Thompson

Thank you, Robert. Thank you very much Robert. It's good to hear some good news about us. I think we do a lot of great things. So Robert thank you. One more question.

Unidentified Speaker

This question is on growth and this is [Mr. Maxwell Todd] and he is a shareholder.

Unidentified Analyst

Well for the past 10 years most companies have been strongly going after the Chinese market, where does McDonald’s see the next China like opportunity to grow?

Don Thompson

It's a great question. Tim?

Tim Fenton

Sure. Having lived in Asia for six years, first of all China is a great market for us, it's our fastest growing country that we have. By this time next year we will have approximately about 2,000 restaurants, it's the second fastest country to get to 2,000, the fastest was the U.S., but where is the next China or we look at the BRIC countries, in Brazil, Russia, India, China, Southeast Asia is a growth market for us. Eastern Europe is a big growth market for us.

Saudi Arabia is a big growth market for us in the Middle East. We have plans to open in Vietnam in the fourth quarter of this year or first quarter of next year. So there is a lot to do for, we have got many countries and I classify these countries that have 100 restaurants and more they are opening on a pace of 20% on their base of unit. So majority of our growth will be coming from international. Don had mentioned earlier that 1,500 to 1,600 restaurants, new restaurants will open this year, majority of those will be overseas in our growth markets and in our establish markets. There is still lot of growth in our establish markets as well. Thanks for the question.

Don Thompson

Thanks very much. I said two; we only have one person standing, so Martin you get the last call here.

Unidentified Speaker

Thank you, Mr. Chairman. On the shareholder proposals, we want to thank -- take the time to thank all the shareholders who took the time to participate on the voting and especially the ones who voted on our proposals. I want to propose that make proposals don't think the people these shareholders who vote (inaudible). One of the benefits of having an annual shareholders meeting is to give the management an opportunity to give their views and you certainly have given us views and I certainly appreciate coming for the meeting and hearing all the shareholders who came before me and asked questions because of any meetings, I am the only one who get ups in thoughts. So I really like to see other shareholders who have been talking rather than myself. Thank you.

Don Thompson

I really want to thank all of the folks who have questions and especially for your concerns starts about our business. We take it all very seriously. And with that, I would like to bring our Chairman, Andy McKenna back to the podium.

Andy McKenna

Well, thank you, Don. We have received the preliminary voting results from an independent inspector of election and final results will be posted on McDonald’s website after all the votes have been tallied and certified. The preliminary results are as follows. Shareholders have elected each of the director nominees with the support of at least 97% of the shares voted. Shareholders have approved the management proposal related to an advisory of vote on executive compensation with the support of 95% of the shares voted. The shareholders have approved Ernst & Young as the company's independent auditor with the support of 98% of the shares voted.

Now the advisory shareholders proposal requesting an annual report on executive compensation has not been approved by shareholders yet received a support of 7.3% of the shares voted. The advisory shareholders proposal requesting the executive stack retention policy has not been approved by shareholders yet received the support of 31.3% of the shares voted. The advisory shareholders proposal requesting a human rights report has not been approved by shareholders yet received the support of 28.3% of the shares voted. And the advisory shareholders proposal requesting a nutrition report has not been approved by shareholders yet received a support of 6.3% of the shares voted.

So we thank you all for attending the meeting for your participation. We certainly appreciate your investment and your support in McDonald’s. The meeting is now adjourned.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: McDonald's CEO Hosts 2013 Annual Shareholders' Meeting Conference (Transcript)
This Transcript
All Transcripts