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McDonald's Corp  (NYSE:MCD)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to McDonald's Fourth Quarter 2018 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. (Operator Instructions) I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. Cieplak, you may begin.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Good morning 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 is also being recorded for replay on our website. 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 the reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. And now, I'll turn it over to Steve.

Steve Easterbrook -- President and Chief Executive Officer

Thanks, Mike. We're pleased with our strong performance in 2018. Global comparable sales increased 4.5% for the year reflecting our broad-based momentum across the McDonald's System. This is a year when we brought our customers greater convenience, choice and value as we continued aggressively transforming our business. Customers rewarded us with more visits again last year, resulting in back-to-back years of global guest count growth for the first time since 2012. This achievement is even more notable at a time when informal eating out traffic growth has been muted. Most of our top markets excelled in 2018 and outperformed our competitors.

The UK for example, now has 51 consecutive quarters of like-for-like sales growth and it continued to gain share in a shrinking market. Canada grew comparable sales and guest counts for the quarter and the year extending its 10-year run of success. With 19 consecutive quarters in comparable sales growth, Australia continued their momentum with offerings such as the successful All Day Favourites and the benefit of rising delivery sales.

Germany is outperforming competitors as customers enjoy modernized restaurants and the benefits of one of the most effective digital engagement programs in the McDonald's System. The market now has seven consecutive quarters of comparable sales growth and posted its best annual comparable sales growth percentage in 25 years. Italy continues to be one of our best-performing markets. The foundation of that success starts with a great leadership team executing a solid growth plan. The market is also seeing positive results from investing in Experience of the Future and maximizing the business impact of other Velocity Growth Plan initiatives such as digital and delivery. McDonald's Italy had a strong 2017 and followed that with an even better year in 2018.

In the US, we're in the middle of the ambitious program the market has ever undertaken. The US is executing a significant number of initiatives at the same time. Still, in 2018, we grew sales while continuing to invest billions of dollars in our restaurants, making foundational changes in our business and staying focused on our customers. While we have much ahead of us, we made significant progress with a lot of hard work in 2018. The US is a much more nimble organization today than it was at the start of 2018. We reduced the number of co-ops from nearly 200 to fewer than 60 and halved the number of field offices.

The market trimmed down the number of (inaudible) it works with from dozens to fewer than 10. The most significant change in the market resulted in giving our customers better tasting food, greater convenience and a better overall experience. One example in the US is last year's national launch of cooked right when you order fresh beef quarter-pound burgers, getting customers hotter and juicier burgers which they crave.

In 2018, the US converted about 4,500 restaurants to Experience of the Future. That meant we reopened more than 10 new restaurants everyday throughout the year, introducing local communities across the country to a dramatically different McDonald's. This is an aggressive pace with an ambitious agenda at a time when the US market is experiencing intense competitive pressures. Chris Kempczinski and the US leadership team remain engaged in collaborative and constructive dialogue with franchisees. At the end of 2018, they met face to face with franchisees in all 10 field offices across the country. They discussed key challenges facing the business, including the effort required to execute the plan at the current pace and the optimum balance between local and national decision-making.

Whilst we've made some tactical and timely adjustments to our plan, collectively we remain committed to the growth strategy. It gives McDonald's the best opportunity to win in what is becoming an increasingly competitive market share fight. I also meet regularly with franchisees throughout the US and earlier this month, I had the chance to visit with several of them in Louisiana and Georgia. I heard first-hand how much they appreciate the flexibility and our continued willingness to work with them in carrying out the plan.

This is the right strategy for our business and we're committed to driving shared success. On visiting our modernized restaurants, it is easy to see how the new ordering options, refreshed decor and overall enhanced hospitality make a difference for our customers. We established a solid foundation in the US last year that will serve us well in 2019. Now, Kevin will discuss our financial results for the fourth quarter and full year.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Thanks, Steve. With a relentless focus on our growth strategy, we continued our strong sales momentum across most of our top markets with global comp sales up 4.4% for the quarter. This marks our 14th consecutive quarter of global comp sales increases with each segment once again contributing to the growth. We also grew global guest counts for the quarter. Our top line performance and broad-based strength is a significant achievement given the muted informal eating out environment in most of our major markets as Steve mentioned earlier.

Looking across the segments, the International Lead markets continued to outperform the competition with comp sales up 5.2% for the quarter led by the UK, Germany and Australia. For the full year, every market in the ILM segment delivered both sales and guest account growth, something these markets haven't achieved since 2011.

High Growth segment comp sales were up 4.8% for the quarter with Italy, The Netherlands and Poland delivering double-digit comp sales growth and positive comps across most of the segment.

In the Foundational markets, comp sales were up 7.1% with Japan once again leading the segment and positive comps across all geographic regions.

Turning to the US, comp sales were up 2.3% for the quarter while comp guest counts remain negative. In 2018, the QSR environment in the US proved challenging with aggressive promotional activity throughout the industry. Despite this, we achieved a positive comp sales gap of 100 basis points for the full year versus our QSR sandwich competitors.

In the fourth quarter, US sales continue to benefit from healthy average check increases from favorable product mix shifts and menu price increases. Value and deal offerings like the four for $6 Classic Meal Deal, limited time offers like the Glazed Tenders and Triple Breakfast Stack sandwiches and our fresh beef quarter pound burgers all contributed to a higher average check.

As I discussed on last quarter's earnings call, construction downtime and slower sales recovery related to the aggressive pace of modernization in the US was a headwind in 2018. We've implemented processes to shorten project downtime and accelerate recovery to minimize the impact to the business as we continue our EOTF deployment.

Turning to bottom line results, earnings per share was $1.97 for the quarter, an 18% increase in constant currencies after excluding current year impairment charges and tax reform related items in both the current and prior year. In addition to strong comp sales performance, EPS benefited from a lower than normal 19% effective tax rate for the quarter while foreign currency translation was an offsetting pressure of $0.05 per share.

Franchised margin dollars grew 6% in constant currencies for the quarter, reflecting sales driven performance and conventional refranchising. Franchised margin percent declined by 90 basis points as franchise revenue growth was more than offset primarily by higher depreciation costs related to EOTF modernization in the US.

Despite cost pressures around the world like rising labor costs, sales growth and refranchising benefits drove a 20 basis point increase in consolidated Company-operated margins.

2018 was the first full year we began operating under our streamlined and more heavily franchised business model and the benefits are reflected in our results. Our business continues to generate significant cash flow. In 2018, free cash flow was $4.2 billion, an increase of 14% over 2017. Our full year restaurant margin dollars grew by over $100 million in constant currencies. And excluding current year and prior year special items, our 2018 operating margin was 43%, up over 4 percentage points from the prior year. In the US, Company-operated margins declined 190 basis points for the quarter. Wage pressures and continued investments in deployment of our key initiatives contributed to both higher labor cost and depreciation expense. Commodity costs were up about 2.5% for both the quarter and the full year.

Menu price increases were around 2% for the quarter as we look to strategically balance the need to offset cost pressures with our customers' willingness to pay. For the International Lead markets, commodity pressures eased for the quarter, up 1% while the full year was up 2%. Menu prices increased about 2% year-over-year. G&A for the year was down 2% in constant currencies. I'll put our G&A savings into perspective in a few minutes when I review our outlook for 2019. Now, I'll turn it back to Steve.

Steve Easterbrook -- President and Chief Executive Officer

Barely (ph) two full years into executing the Velocity Growth Plan, our strategy remains focused on reaccounting (ph) guest count momentum and regaining customer visits. We're visibly demonstrating to our customers how we're becoming a better McDonald's with a robust range of initiatives. With our focus on improving the taste of our delicious food, enhancing convenience, offering compelling value, upholding the trust consumers' place in our brand, we are maximizing our opportunity to improve customer perceptions and encourage more visits.

We continuously strive to improve the taste of the iconic sandwiches at the core of our menu and introducing items appealing to customers. During the quarter, we had many examples in markets that found success in encouraging visits and sales with menu changes. In Germany, customers continue to enjoy iconic favorites on the Taste of McDonald's platform such as the McChicken. Canada extended the successful launch of bagels earlier in the year by introducing All Day Breakfast Bagel sandwiches with fresh cracked eggs.

In Spain, loaded fries were popular with customers seeking a snack and many also enjoyed adding them on to a meal. RCA (ph) Canada had a successful promotion introducing bacon on some of our classic sandwiches and this week, the US launched a similar campaign to encourage more visits to our restaurants. We were pleased to see the attention generated with yesterday's Bacon Hour events and the US is following up by offering bacon on Big Macs and Quarter Pounders as well as Cheesy Bacon Fries.

Time and again, we see the importance customers place on getting their food hot and fresh with fast, friendly service. Customers notice a difference when we run great restaurants and we continue to focus on improving the operations of our restaurants to provide customers with great all-round experience. I'm encouraged by the greater discipline we're demonstrating in many of our markets as they simplify menus, take other actions that reduce complexity and improve our ability to provide exceptional experiences for our customers.

Serving delicious food and offering great service are vital, but not the only requirements for maintaining strong trust to consumers. Public expectations of leading companies like McDonald's have never been higher. In December, we announced that we are partnering with suppliers and beef producers to reduce the overall use of antibiotics in our beef supply chain. This is the latest in a series of announcements throughout 2018, but we detailed bold targets for Scale for Good in addressing some of the world's most pressing challenges. In committing our resources, attention and significant convening power and influence, we are demonstrating to our customers, employees and other stakeholders that McDonald's is worthy of their trust.

2018 also marked a year of significant progress with each of our Velocity accelerated delivery, Experience of the Future and digital. We will take action in 2019 to capture additional growth opportunities within the Velocity strategy. Delivery momentum continues and is now available for over 19,000 restaurants, more than half of our global system. It took us almost 20 years to grow our annual delivery business in the Middle East and Asia to $1 billion. Over the past two years, delivery has become a $3 billion business for both McDonald's company and franchised restaurants globally. Delivery continues to grow rapidly as we expand through additional restaurants and third-party providers as well as benefiting from strong same-store sales momentum.

Many of our major markets such as the US, France and the UK achieved delivery sales growth in the high-double digits in restaurants offering the service for more than 12 months and other markets such as Canada, Italy and Russia grew even more. We are confident that delivery offers additional growth potential for our business. Even with the momentum we already have established, we know we have an opportunity to let more customers know that McDonald's will bring meals to their homes, offices and college dorm rooms.

Driving awareness begins with encouraging more customers to try delivery. We talked before about the high satisfaction among our delivery customers and their willingness to reorder and we continue to see those trends hold steady throughout 2018. We placed a high priority on identifying the winning ideas developed by individual markets and spreading them elsewhere within the McDonald's System. In delivery, the UK, Canada and Australia are leaders within McDonald's and are developing innovative approaches to help restaurants with high order volumes.

In Australia, awareness more than doubled through a major campaign of promoter delivery with in-restaurant signs, engaging social media outreach, PR activity and advertising and in its own awareness campaign, Uber Eats in Australia featuring McDonald's demonstrating the strength of our partnership.

We also continue to bring learning from China, our most developed delivery market, to help our newer delivery markets, especially related to restaurant operations. As we have said previously, underpinning everything we do with this growth accelerator is our commitment to make delivery easy and convenient for our customers, which will help us maximize the competitive advantage of our business.

Now I'll turn to another one of our Velocity accelerators, Experience of the Future. The refreshed decor, new ordering options and an enhanced focus on providing more enjoyable visits to our restaurants, we're introducing a new hospitality experience to McDonald's customers. Our guest experience leaders have been key to a better customer experience, which we've seen drive high customer satisfaction and sales and ultimately, strong business results. With about half of our restaurants around the world converted to EOTF, we have many more customers' experience the modernized restaurants and enhanced hospitality.

We've identified an opportunity to be more consistent in assuring restaurants adopt proven best practices for engaging with customers in our updated restaurants. We've made significant progress for example in the US in training tens of thousands of additional guest experience leaders to greet our guests with an enthusiastic smile, assist the customer with kiosk orders, offering trays of Big Macs and fries to a customer's table. We're encouraged by the impacts on our business as we continue to enhance hospitality and complete more projects. Restaurants that have introduced Experience of the Future elements continue to perform in line with our expectations for higher sales and customer satisfaction.

Customer expectations for the way they interact with brands continue to rise. We have made additional progress in 2018 rolling out digital platforms, making the McDonald's experience simpler and more personalized for our customers. In the years ahead, we will continue making strides through digital channels to reward customers with good value and relevant offers as well as incorporating fun experiences they appreciate from our brands. These opportunities are possible because of the extensive work we completed in deploying technology throughout the McDonald's System including self-order kiosks in nearly 17,000 restaurants, digital menu boards in more than 21,000 restaurants, and new capabilities for mobile order and pay that's available in over 22,000 restaurants. Now, Kevin will discuss our outlook for 2019.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Over the last several years, we fundamentally enhanced the strength and stability of our business. In anticipation of being substantially complete with our refranchising efforts, we established long-term average annual financial targets set to begin this year. These targets reflect our confidence in our ability over the long-term to increase systemwide sales 3% to 5%, maintain our operating margin in the mid-40% range, deliver earnings-per-share growth in the high-single digits and achieve a return on incremental invested capital in the mid-20% range. The strength and reliability of our significant and growing cash flow enables us to return about $25 billion to shareholders over the three-year period ending this year, including our 15% dividend increase announced last September.

Over the last two years, we've returned over $16 billion toward this target through share repurchases and dividends. Looking to 2019, we anticipate some headwinds this year around labor cost, EOTF-related depreciation in the US, commodities and foreign currency translation, which will put some pressure on EPS growth this year. Higher depreciation expense in the US will continue to impact both franchise and Company-operated margins over the next couple of years. Franchise-related depreciation expense will increase by about $100 million year-over-year in 2019 and depreciation on Company-owned restaurants will also increase about $15 million (ph) both driven by the accelerated pace of EOTF.

We expect commodity increases in the US of 1% to 2% for the year and an increase of about 2% in our key markets outside the US. Based on current exchange rates, we also anticipate currency pressures to continue for the first half of this year. At today's rates, we expect currency to negatively impact EPS by $0.08 to $0.10 in the first quarter and $0.13 to $0.15 for the full year. As usual, this is directional guidance only because rates will change as we move through the year.

We continue to exercise strong financial discipline and we expect about a 4% G&A reduction in constant currencies for the year. At current exchange rates, this will result in total G&A of roughly $2.1 billion. Since the beginning of 2015, we will have achieved gross G&A savings of over $600 million. After reinvesting some of this back into areas to drive growth, like technology, we'll be down net about $500 million from our initial 2015 budget of $2.6 billion.

We've mentioned that most of our major refranchising transactions are complete. We will continue to refranchise some restaurants to conventional licensees across markets such as the UK and US, but to a much lesser extent. As a result, we expect gains on restaurant sales this year to be about $200 million less than 2018.

Moving on to capital. We ended 2018 with capital expenditures of $2.7 billion. Although this was slightly higher than initially planned for the year, we completed about 4,500 EOTF projects in the US, well exceeding our original plan of 4,000 projects. As we've also noted, inflation in the overall construction industry has also been a pressure on EOTF project costs. We currently expect to spend roughly $2.3 billion of capital in 2019. Nearly $1 billion of that capital will be dedicated to completing approximately 2,000 EOTF projects in the US. Our recent adjustments to the US plan now provide the ability to more evenly balance remaining EOTF projects between 2019 and 2020. While we have provided an option for franchisees to extend the projects beyond 2020 at a reduced partnering level, most franchisees are choosing to complete their projects over the next couple of years. So we expect to be substantially complete with EOTF by the end of 2020.

New restaurant development continues to be an important component of our growth equation. We plan to open roughly 1,200 new restaurants this year. We will spend approximately $600 million of our capital to open about 300 restaurants in our wholly owned markets. Our developmental licensees and affiliates will spend their capital for the remaining 900 openings, nearly half of which are planned in China. This is a demonstration of how the financial resources and capabilities brought by our expanded network of developmental licensees create opportunities for accelerated expansion. As we enter 2019, I'm confident that we are well positioned to deliver sustained long-term profitable growth for the system and our shareholders.

Steve Easterbrook -- President and Chief Executive Officer

With our strong performance in 2018, you can see why we're confident in our strategy. We have a lot of growth potential remaining in the core of the Velocity Growth Plan and the accelerators, provides a solid foundation driving our business as we begin 2019. I recognize there are significant challenges as we enter the New Year. Kevin shared several of the financial headwinds to growth that we are facing and as you've seen consumer uncertainty is growing from France to China to the UK and elsewhere across the globe in response to tightening economies and shifting political environments. Still, we remain optimistic. The investments we've already made in modernizing thousands of our restaurants have placed us in a strong position. This will continue -- we will continue to prioritize investments in our restaurants and our business so we can keep advancing as a leading global brand in a dynamic consumer landscape. In the fight for market share, some will succeed and others won't. We intend to keep positioning McDonald's on the winning side. And now I hand over to Mike who can lead Q&A.

Questions and Answers:

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Thanks, Steve. We will now open the call for analysts and investor questions. (Operator Instructions) To give as many people as possible the opportunity to ask questions, please limit yourself to one question. Our first question is from Eric Gonzalez with KeyBanc.

Eric Gonzalez -- KeyBanc Capital Markets -- Analyst

Hey, good morning. Hope you guys are staying warm out there. I have a few questions related to your capital spending plans. Based on your '19 guidance, it seems like you're expecting to spend roughly the same amount in the US business this year versus last year, yet you're expecting to complete roughly half the number of EOTF projects. So I guess the question is, has the EOTF project cost materially increased or are there other areas of spending that you're not previously -- that you haven't previously considered? And also, how should we think about capital spending plans for the out years in 2020 and 2021 given some of the projects are being delayed and considering McDonald's co-investment rate will decline to 40%? Thanks.

Steve Easterbrook -- President and Chief Executive Officer

Yes, thanks, Eric. And yes, we're trying to stay warm, but it's a little difficult these days. All right, so let me talk about capital both for 2018 and 2019. In 2018, we spent roughly $1.4 billion of our capital on EOTF projects in the US. In 2019, that number will be less than $1 billion. So it's going down by, I'll call it roughly $0.5 billion the amount that we're spending on EOTF in the US.

The other dynamic that's occurring though is there's a little bit different mix in the types of projects that are occurring in 2019 versus 2018 on a couple of fronts. One is our Company-operated restaurants. So we did about 200 Company-operated restaurants in 2018, but that was only 4% of the total projects for that year. We'll do a similar number of Company-operated projects to finish those off in 2019, so about 200 again, but that will be 10% of the total projects for 2019. So that helps skew to a little bit higher average cost.

The other dynamic that's happening is in 2018, as we've talked about, some of the projects are what we call non-mods, these are the ones that hadn't been modernized and need the full modernization of the restaurant in addition to EOTF elements. Those were about a third of the projects in 2018, while what we call modern (ph) or restaurants that have already been modernized were about two-thirds. Those are lower cost than the non-mods obviously. In 2019, that split roughly half and half. So that also brings up that average cost from 2018. So our average cost per project is a little bit higher in 2019 than 2018 because of those couple dynamics.

Regarding capital going forward, so we said we expect 2019 to be roughly $2.3 billion. 2020, you should expect to be relatively similar to 2019, maybe a little bit lower and then beginning in 2021, that number should drop dramatically, probably $0.5 billion or so because as we mentioned, we should be substantially complete with EOTF projects in the US by the end of 2020. So hopefully that gives you some more information related to the capital.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from Andrew Charles of Cowen.

Andrew M. Charles -- Cowen & Company -- Analyst

Great, thanks. Kevin, I have two questions, Kevin, you called out the US comps outpaced the benchmark by about 100 bps for the year. If my math is right, it sounds like you guys were flat against the benchmark in 4Q. So curious what incrementally changed from earlier in the year as the value environment was fierce throughout 2018? And I guess specifically, did the 50 bps headwind you saw from remodel construction in the first nine months accelerate in 4Q with a greater than expected number of projects? And then separately, this one is for Kevin or Steve, CapEx -- can you talk about how you arrived at the guidance for 2,000 US remodels in '19? Just given the fluid nature of discussions with operators on the topic, is the guidance based on some form of buying commitment or is the guidance based on a best case estimate, if you will?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Okay, so let me start and then I'll turn it to Steve to talk about kind of how we're going about process wise in the US. Related to the comp gap, you're right, it was relatively flat in the fourth quarter to get up to that 100 basis points for the year. I guess I would just say you saw the industry throughout the year certainly was competitive both from a price and value perspective. So I think we're pleased in that environment that we achieved 100 basis points gap for the year, but to your point, it was relatively flat in the fourth quarter.

Regarding the headwind, I'll say that EOTF costs, the fourth quarter was roughly 0.5 point. So it was kind of in line with where we had been in third quarter, roughly 0.5 point for the year. I think we expect as we progress into 2019 that will start dissipating so that by mid-year or so that should turn to be a positive impact. So again, partly because of the lower number of projects in 2019 and partly because of all the projects we did in 2018.

Steve Easterbrook -- President and Chief Executive Officer

The second part of the question, Andrew, are we confident in those numbers? I mean, we have through the course of the 10 field office visits that Chris Kempczinski and the leadership team conducted, clearly we're keen to offer operators the chance to what we've described level load their commitments depending on how many projects they had left and just their own sort of cash flow management obviously. We were really encouraged and reassure that we still believe and know that the majority of those -- of the operators have come forward and they want to either retain the existing schedule or maybe level load across '19 and '20, but really want to take advantage of the partner that we have in place and I think it reflects the confidence they're beginning to see.

I mean, once you start to look at the impact of EOTF, as you start to look at the outdoor digital menu board, then you start to introduce delivery alongside the self-order kiosks, the enhanced hospitality, that combined suite of initiatives really is generating much stronger lift. If you look at the -- those that have completed, now we've got about 8,000 restaurants complete here in the US, we've got fact-based data to share with the operators, which I think just continues to build their confidence. So I think the operators appreciated the chance of flexibility, but the vast majority will complete within the next two years.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Just one last thing I'd add. Just -- our 2,000 estimate right now is based on conversations with the operators. So we did -- that could change a little bit as we get down to formally planning the exact timing over the next couple of months. There hasn't been signed letters or anything like that yet, but based on the conversations we've had, that's where those numbers are coming from.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from Sara Senatore with Bernstein.

Sara H. Senatore -- Bernstein Research -- Analyst

Thanks, a question and then just a quick follow-up on a comment Steve made in the prepared remarks, I just wanted to clarify. The question is again on EOTF, interested that most of the franchisees are sticking with the original schedule, but I guess to the extent that for the immediate impact has been somewhat mixed or is less visible to those on the outside, have you contemplated or had (inaudible) contemplated perhaps not co-investing as heavily and just allowing EOTF to roll out on its own with maybe returning more cash to shareholders? I mean it sounds like it's sort of a done deal at this point, but (inaudible) ROI given relatively flattish market share and some of that once you've seen. And then just my question -- my clarification was Steve characterized the market share fight is increasingly competitive and I was just wondering if that meant you're seeing -- what you're seeing in terms of promotional activity, is it just within QSR, is it -- are you seeing any kind of trade up or down?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Okay, I'll start with the first part and then I'll let Steve come back and talk about market share stuff. Thanks for the question, Sara. You know, related to EOTF and our kind of commitment and investment in that, we've seen it be really successful around the world consistently. It generally increases customer satisfaction, we've certainly seen sales increases around the world and we are seeing that same dynamic in the restaurants in the US that we've converted. So we're committed to investing. We believe that our ability and willingness to invest in our restaurants at a relatively quick pace helps kind of separate us a little bit from others in the industry and so we believe it's an advantage for us to be able to use our financial strength and be able to invest at the right pace and the right time in the US business and so that's why we're continuing to do that.

Steve Easterbrook -- President and Chief Executive Officer

And Sara, on the market share, I think it's probably both IEO and sort of the broader Informal Eating Out and then more specific to us the QSR market share is incredibly muted. I mean if there's any growth at all, it's going to be more likely in the QSR and largely a lot of that is down to new unit additions. So I guess what that means is any traffic gain that you are going to get will be at the expense of someone else. People are typically eating out a little less often and we can respond to those sorts of trends with home delivery, for example, but frankly, we're not expecting any tailwinds from broader growth in either IEO or QSR.

Now, if you want to choose to play in one of those, I much prefer to be in QSR, so I feel good about that and there's a lot of discussion that we have with our markets. Absolute sales growth is always attractive. That top line growth, like-for-like sales is clearly always encouraging and a positive trend, but no matter what your market conditions are, as long as you're gaining share, you're going to end up in a better competitive position in the long-term. So we look at market share very closely and we have a pretty aggressive mindset to it. We don't expect, as I said, just to reiterate, we're not expecting any tailwinds, so our share gain will be someone else's pain.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from David Palmer with RBC.

David Palmer -- RBC Capital Markets -- Analyst

Thanks, just looking ahead to '19 and looking back to '18, traffic obviously slowed down last year particularly earlier in the year. When you look at the foundations you've created and the important changes that you're making heading into this year, what are the most important ones when it comes to accelerating traffic in the US in particular? And then with regard to the delivery business, I would imagine you'll start in-app ordering at some point and with some advertising support behind that. Is the consumer data available only for in-app orders and not through orders through Uber Eats? Thanks.

Steve Easterbrook -- President and Chief Executive Officer

Let me take both of those. So, I think the market where we really want to drive traffic momentum, which will help the overall global figure is clearly the US and I think we have a pretty clear perspective on where those declines are happening and we just need to get a greater focus on addressing those. So to be very specific, we continue to lose traffic at a greater level than we won at breakfast. We're doing well with average check growth, but we really want the customer counts back and more often. So there's a number of initiatives that we are going to be deploying, some of these real nuts and bolts stuff, just looking at our staffing levels across those key busy day parts.

Clearly, menu innovation can always play a part. We believe the shift back into local breakfast value from a national value on the breakfast day part will help us fight against the local competition I guess, the local consumer taste better. We believe there are a lot more legs still left in McCafe and the McCafe brand both are in coffee and premium coffee. And also we do believe that more personalized digital engagement can also help drive our breakfast business whether through having customers enjoy the experience and convenience of mobile order and pay and also more personalized and tailored offers in the app. So that's just an example of the focus we have on breakfast, particularly across the US and that was when I was hearing played back to me when I was in the field offices down in Louisiana and Georgia earlier in the year.

Also we're continuing to fine-tune the value in deal promotions. I mean, you're familiar with the four for $6, we've had 2 for $5 and of course the $1, $2, $3 menus as an entry-level platform and then deal combinations. We're going to continue working on product availability or product offers within those combinations. I think we can get more competitive as we juice that up. Then finally, the one which again I'm excited about and it's nuts and bolts McDonald's restaurant operations type discussion is a renewed focus on the drive-thru operation and just making sure that we can really sort of meet the demand that we're seeing. So I think there's a number of areas where we believe we can get the guest count traffic growing and some -- all of that is within our control. So that feels good. With regard to the in-app, now we can get certain consumer data from our third-party operators, but clearly, integrating into our app will give us a fuller data set. So we can -- clearly, data privacy is foremost in our minds and we always respect that, but we are getting some useful information now, but we're more optimistic that as we get into probably the third quarter of this year, we'll be able to integrate more into our app and actually then secure all that information, that data set on customers and be more useful to them.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from Karen Holthouse with Goldman Sachs.

Karen Holthouse -- Goldman Sachs -- Analyst

Hi, thanks for taking the question. In some of the markets that have had Experience of the Future longer in the US, are there any metrics you can share around, specifically TS (ph) usage? And then are you seeing any signs of greater app adoption or app usage in those areas when you sort of have the kiosks to pull customers into that digital ecosystem?

Steve Easterbrook -- President and Chief Executive Officer

Yes, so our most advanced markets probably is France, for example who really started adopting self-order kiosks earlier than anyone else and then we had some fast followers: Australia, Canada, Italy, Netherlands for example, what we're tending to see is significant year-on-year usage percentages for in-store customers. So I guess what I'm trying to say, a greater percentage of customers that go into our restaurants are using the kiosk as they get more confident with it, they get more familiar with it, they enjoy just the time they're able to spend on it and optimally going in groups and then group order for example. So we are seeing some restaurants with as high as 80%, 90% of in-store guests using the kiosks. And particularly now, as we add the enhanced hospitality, they can just order, pay on credit, go straight to their table and we'll bring the order out. So it really has transformed the experience. So, we're actually seeing not just our own data, but we're seeing the customer satisfaction measure dramatically increase. So, we're using these learnings to actually help markets that are still in the process of rolling out EOTF whether that's the U.S. and still some other emerging markets because the data is powerful, the data is proving out the business case and that's why we're going to continue supporting it as we go.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from Jeff Bernstein with Barclays.

Jeffrey A. Bernstein -- Barclays -- Analyst

Great. Thank you very much. Two questions, one just on the US franchise system, seems like they're getting increased visibility with the formation of their kind of owners' association and I guess we're seeing more reports talking about some frustration with things like delivery and investment in EOTF, which you guys have talked about in the past and I guess is all QSR peers are seemingly having a -- always have a small portion of franchisees that are disgruntled, so I'm just wondering Steve, maybe whether you're concerned that these concerns at McDonald's are more on an escalating path that could damage the system or maybe you can tell us what you think the biggest concerns or push-backs are. And my follow-up was just for Kevin. I just want to clarify what you said about 2019 EPS. I know you said it will be pressured but I wasn't sure whether that was benchmark and against where consensus is or versus your high-single digit kind of long-term outlook or how we should think about the reference to it being pressured? Thanks.

Steve Easterbrook -- President and Chief Executive Officer

Yes, I'll take the first one and around the US, our owner/operator sentiment and commitment to this bigger owner (ph) vision plan. So, again let's just keep in context just quite how ambitious the plan that the operators and our leadership team built together and that was always going to be hard work and 2018 was a year of hard work. It was a year when we as a company and the owner/operators individually begun to write more significant checks as they were committing to the plan. So the dialogues always going to happen, the dialogue always does. Sometimes it's at a low level, sometimes it just bubbles up a little. I think the good news is we're talking and our teams and the owner/operator leadership are talking with one another to see how we can help maintain the confidence in the plan, maintain the commitment to the plan. If there's any adjustments or amendments that we need that we can make those as we roll.

So wouldn't life be great if everyone was happy? Of course. So am I fundamentally concerned that it will derail us from the shared ambition we have? No, not at all and I think just the fact that the dialogue continues means that we're going to get to a good place and one where we all turn up to work feeling excited about the opportunity that we're facing because the more time the consumer facing and getting in our restaurants and activating the plan is going to be good for the customer experience and the business results. So -- and again I could hear that first hand from my market visits this year down in Baton Rouge and across Atlanta. So it's -- the door is always open on that.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

And then Jeff, regarding where I mentioned that there will be some pressure on EPS growth this year, I'm not comparing versus consensus, I'm just talking about our internal targets. As I mentioned, there are some one-time things like gains will be ratcheting down between 2018 and 2019 so that impacts that EPS growth rate. It's a one-time, I'll say change if you will, but we've always known or always talked about our refranchising starting to roll off. Related to depreciation then, I mentioned there's obviously pressure on margins, if you will in '19 related to depreciation. Now, that won't impact cash flow or anything like that, but it obviously has an impact on just pure EPS growth rate, so that's all I was just trying to say.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from John Glass with Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much. Two as well please. One, Steve you mentioned consumer confidence and other sort of cautionary notes about 2019. Was that directed at maybe the year has been a little softer -- off to a softer start than you thought or is that just sort of standard, there's always things in the world to worry about. And then specifically on EOTF, I suspect slowing (ph) the pace of the conversions probably help sales in 2019 (ph), maybe you can comment if there's a change or less burden on sales relative to that? And you also mentioned that you're level loading it, but I think at the end of 2019, you'll be 10,000 converted in the US and so there's another 4,000 to go, is that 2,000 and then the rest just don't have to get done or how do you think about level loading if you got more to do still then the balance of 2,000?

Steve Easterbrook -- President and Chief Executive Officer

Yes, hi, John. I think Kevin will take the second one. No, I was not looking to signal any short-termism in those comments. I was just -- thought it was responsible just to acknowledge that as you enter to 2019, as you look around just the global macro picture, it just appears a little less certain than entering the last couple of years and I mean that's evident to all of us anyway. I thought it was worthy of note, but no, I don't want that to be read into any form of indication of how the year started.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

And then regarding -- two things, one kind of the EOTF impact as you called it, yes by doing a little less projects in 2019, it actually will be a benefit -- more of a benefit to sales than if we had done 4,000 projects in 2019. So that's when I mentioned where the EOTF impact, if you look at all the pieces should start, I'll say turning positive by mid-year versus the drag that has been really all of this year. Regarding the number of restaurants or counts, if you will, of EOTF projects, right now through 2018, we're a little over 7,500 restaurants complete if you will. If you then think about roughly 2,000 being done in 2019 and roughly 2,000 being done in 2020 and then likely another 1,000 or so remaining that would happen in '21 and '22, that gets us to roughly most of the estate because at the same time, there are some that we are either relocating or we have rebuilt and so you get another 1,000 or so just the restaurants that either get relocated or rebuilt over all of those years. That gets you to roughly 13,500 or so of our 14,000 plus estate, that's substantially all of them. There will be a few restaurants that we don't get to on POS (ph).

Steve Easterbrook -- President and Chief Executive Officer

I just want to hook on, I want to go back to Karen's question regarding the app usage actually because I don't think I addressed that. I want put it into a broader perspective because you are asking around self-order kiosks, but if we were to put all of our technology initiatives, whether it's a global mobile app, the work we've done for mobile order pay, introduction of self-order kiosks, the use of our outdoor digital menu boards. So as we build the kind of customer relationship management, we're now creating this very, very powerful ecosystem that as we start to connect these technologies together will offer our customers better experience, better value, more personalization and we will get to understand our customers and their behavior so much better.

So I wanted to acknowledge your point that as we start to be able to identify customers, when that -- once we start to unlock that as self-order kiosk or as they pull into a drive-thru lane, our ability to smooth their experience, make it more convenient, recognize them individually and also learn off them is incredibly powerful. So these are a lot of foundation investments we're making to create what I think will be an incredibly powerful ecosystem for want of a better word that is going to provide a lot of knowledge, a lot of data for us and a much better experience for our customers.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from Greg Francfort with Bank of America Merrill Lynch.

Gregory Paul Francfort -- BofAML -- Analyst

Hey guys, thanks. I just have one clarification to the earlier CapEx comments and then a question. Just I think in response to Eric's question you were referring to 2021 CapEx in the $1.5 billion to $2 billion range, but I think previously you've said sort of $1 billion -- low $1 billion was the run rate. Is 2021 not a long-term number?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

So '19 and '20 will be roughly the $2.3 billion, but as I just mentioned, we'll have about 1,000 projects left still for '21 and '22. So it won't get all the way down to the longer-term run rate, if you will. It will be substantially less than '19 and '20, but not quite yet all the way down to normal ongoing run rate.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Our next question is from David Tarantino with Baird.

David E. Tarantino -- Robert W. Baird -- Analyst

Hi, good morning. On the US, I had a question, I think Steve you referenced a couple of times just sort of operational improvements in speed of service and I know I've asked about this many times over the past few years, but just wondering if you could maybe share specific action steps you're taking to improve speed of service at the drive-thru in the US? And I know your referenced some technology benefits, but is there going to be a greater push on that in 2019? And if so, how are you going to achieve progress there? Thanks.

Steve Easterbrook -- President and Chief Executive Officer

Yes, thanks, David and I mean this is the stuff we kind of really get into. So let me just give you a couple of examples of what we will be doing differently that we believe will help reduce complexity and as a result, improve speed. Introduction of technology, we've got some new -- we just call them zoom boards, but these are little digital screens at the drive-thu presenter window. So as we -- where we pass out the food, we can really start to provide real-time service times within the restaurant and where the little bottlenecks can be, whether it's at the ordering process, the payment or whether we are maybe don't have the food ready, but having to ask someone to park him (ph) under the parking page for example, but getting that information real-time, setting others a positive competitive nature in the -- up against the local drive-thru restaurants or maybe all the other drive-thrus within the owner/operator group for example, we've seen this operate really successfully in Canada, we see it operating really successfully in Australia and it just provides that competitive spirit also that kind of bottleneck identification. If you are running that shift, you can see why the payment process, we're not handling the cash as quickly as we possibly could do, why is the ordering process taking slightly longer at the drive-thru? Maybe it's a training issue, maybe it's a technology issue. So it just enables those issue identifications so much quicker that you can address them quicker and keep things moving, so kind of real nuts and bolts stuff that we get into but allowing technology to help make our restaurant managers' and crews' lives easier.

A totally different one is that we've begun to build a much more sophisticated tool for assessing menu complexity where we can understand the volume of certain menu items we sell, the difficulty that it is for us to prepare, you know, the average normal production time, the type of gross margin contribution it makes to our owner/operators and that is helping us to better identify where and how we can simplify the menu with the minimum customer assistance with a view to actually driving customer satisfaction and speed, but also protect or enhance gross margins as well. So it's a much more sophisticated tool that we can run live product data (ph) through and really start to give much more fact-based information to our teams in the field so they can make these decisions with a much higher level of confidence. So that's just a couple of examples, but it's across all 10 field offices, all 10 of them have drive-thru service and clearly then there's -- with Chris Kempczinski and the national team have drive-thru focus and service as a key initiative.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

As we near the top of the hour, we have time for one more question from John Ivankoe with JPMorgan.

John Ivankoe -- JP Morgan -- Analyst

Hi, great. Thank you. Just a few very quick ones and first was actually the follow-up on drive-thru service times. Have you seen those peak, I mean, are they -- in other words, are they continuing to get worse or they are stabilizing? And if they're not stabilizing, when might you see those stabilize was the first question. And then secondly, what is the experience of delivery for the McDonald's stores in the United States that have had it the longest, not just as a percentage of sales basis, but are they happy with incrementality in sales? Are they happy with profitability? Are there any changes that you could potentially see in that program to expand franchisee profitability of delivery? And then the third question if I can, is a technical one. Notes receivable and accounts receivable, how does this -- you've kind of been bumping up actually for some time, I think it was around $2.4 billion in the fourth quarter. Is there anything around EOTF related to that maybe in terms of what you're doing with franchisees and might you expect those accounts to be drawn back down and be a source of cash for you in the relatively near-term?

Steve Easterbrook -- President and Chief Executive Officer

So I'll happily take the technical one over the (inaudible). Drive-thru service times have increased year-on-year for about the last five years. We collectively have culled (ph) that to a halt. So we expect to actually reduce service times across 2019. We're starting immediately with activities in quarter one of this year, actually in restaurants currently. So there is a collective resolve that service times have to have peaked. We will not accept them for getting any longer and therefore we are looking to address those. So hopefully, that responds to that question.

On delivery, we're seeing just great growth in year-on-year for those that have been offering delivery for more than 12 months. So part of the measurement system we have here is not only just we add new restaurants, not only we want to grow the organic business, if you like, we now entered lapping like-for-likes on delivery. Incrementality still remains encouraging in that kind of 70%-ish range, average check still remains around 2 times the normal average in-store. We know from the day part analysis as well that helps support our belief and confidence in incrementally because it's peaking at day parts that we will ordinarily be seen as sort of business peak. So we believe we're well set up to do more, I think the piece that we're collectively still trying to fathom out is how do we drive the awareness because we know as soon as customers try it, they stick with it -- enjoy it and they stick with it. So awareness here in the US, typically we would want to have a critical mass of our restaurants here, 77% plus (ph) before we were to do anything with national awareness, we have a marketing campaign or a broader social media campaign, but I also note the local co-ops are getting after it as and when a critical mass of their restaurants in that co-op now starts to offer as we start to expand with Uber Eats and elsewhere around the world with Uber and other third-party operators, getting the awareness is one of the key priorities we have. So we feel good about that. Now I will hand over to Kevin on the final part of the question.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Yes, related to accounts receivable, so really most of the increase certainly is related to US EOTF projects. The way it works is we generally manage those projects and so we'll project manage all of it and then we'll collect from the operators and so you are seeing that those balances are up because they've been focused on getting the projects done. Mechanically, we need to go through some closing of jobs and collecting the money from the operators. It isn't uncollectible money, it's a timing issue of when we'll actually just receive the -- go through the logistics of closing out projects and collecting the money from the franchisees. So yes, it should be -- it will be a cash inflow as we continue on. I would expect that receivable number to go down now that there will be some pressure off of the number of projects. If you think about 2018, everyone was just driving hard toward getting all the projects done. Now, we can get some of the kind of other stuff associated with that done like collecting the money. So that's exactly right, John.

Mike Cieplak -- Senior Vice President and Investor Relations Officer

All right, thank you, Steve and Kevin and thank you, everyone who joined our call today. Have a good day.

Operator

This concludes McDonald's Corporation investor conference call.

Duration: 63 minutes

Call participants:

Mike Cieplak -- Senior Vice President and Investor Relations Officer

Steve Easterbrook -- President and Chief Executive Officer

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Eric Gonzalez -- KeyBanc Capital Markets -- Analyst

Andrew M. Charles -- Cowen & Company -- Analyst

Sara H. Senatore -- Bernstein Research -- Analyst

David Palmer -- RBC Capital Markets -- Analyst

Karen Holthouse -- Goldman Sachs -- Analyst

Jeffrey A. Bernstein -- Barclays -- Analyst

John Glass -- Morgan Stanley -- Analyst

Gregory Paul Francfort -- BofAML -- Analyst

David E. Tarantino -- Robert W. Baird -- Analyst

John Ivankoe -- JP Morgan -- Analyst

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