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McDonald's Corp (NYSE:MCD)
Q3 2019 Earnings Call
Oct 22, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to McDonald's Third Quarter 2019 Investor conference call. [Operator Instructions] 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 McDonald's Corporation. Mr. Cieplak, you may begin.

Mike Cieplak -- Senior Director of Investor Relation

Good morning, everyone, and thank you for joining us. With me on the call this morning are President and Chief Executive Officer, Steve Easterbrook; and Chief Financial Officer, Kevin Ozan.

I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website as our reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures.

Following prepared remarks this morning, we will turn the call over for your questions. I ask that you please limit yourself to one question, and if you have more than one, please ask your most pressing first and then reenter the queue. Today's conference call is being webcast and is also being recorded for replay via our website.

And now, I'll turn it over to Steve.

Stephen Easterbrook -- President and Chief Executive Officer

Good ,morning and thank you for joining us. Broad-based momentum across our markets resulted in a 5.9% increase in global comparable sales for the quarter and our 17th consecutive quarter of global comp sales growth. This was complemented by gains in global guest counts.

Across every country, function and level in our system, we are seeing improving discipline and robust levels of execution that are guided by our Velocity Growth Plan. Performance that is punctuated by culture that is embracing and leveraging innovation across every facet of our business.

Every quarter, I spend several weeks visiting restaurants to speak with franchisees and market leaders around the world. I come away from these visits inspired by how our actions resonate the customers. Never more so than today when our global economy presents many economic, social and political challenges and uncertainties.

Across markets, our success follows a consistent formula. Put the customer first, strive to understand their needs and desires, and cautiously find ways to improve their experience. Then empower our people to pull the levers that create delicious feel good moments for customers every visit, every day.

And how that is? Start with strong corporate leadership and system alignments around the vision. Engage local franchisees who bring an entrepreneurial mindset, a unique understanding of how to drive growth in their markets and skill of developing innovations that improve efficiency and the customer experience. Leverage the delicious food, this is the core of our menu, run effective value strategies rooted in deep customer insights, and provide outstanding customer experience by running great restaurants. And finally, layering in initiatives to accelerate and sustain growth.

Existing [Phonetic] markets this quarter in St. Petersburg are some examples of how the team is pulling Velocity Growth Plan levers across Russia. In a tough economic environment, we are meeting customers' needs for taste, quality and value. At the same time, we are empowering our crew to complement McDonald's delicious food with hospitality and convenience for our guests. Our Russian customers have taken notice, we're serving more guests and delivering a better experience in our restaurants.

In Portugal, we are seeing balanced growth across all dayparts and all menu platforms. Year-to-date, our core products are driving roughly half of comp sales growth and McDelivery is providing a meaningful comp sales lift.

In Taiwan, which recently celebrated it's second anniversary as a Developmental License or DL-led market, the results are showing the benefit of the DL model. Our partner bring strong local leadership, a passion for our brands, greater insight at a local level and financial strength to invest in a purposeful roadmap for growth.

Finally, in Japan, where an aging population, declining labor force and softening consumer confidence are combining to create unique market pressures. Our team has made strong gains by offering menu items that tap into local tastes, table service that resonates with guests, and continued promotion of our digital capabilities, we've grown comp sales in Japan for the last four years.

Across global markets, we're serving up a proven formula that signals to our customers, we care about them.

In my visits with franchisees across the U.S., it is clear to me that excitement has returned into the system with execution of Bigger Bolder Vision 2020, the ambitious plan we build with our franchisees.

Average franchisee restaurant cash flow is moving in the right direction with 11 consecutive months of cash flow growth through September. We expect this trend to continue through the rest of 2019.

During the quarter, I spent time with next generation franchisees. These are children or grandchildren of franchisees who were up in the McDonald's System, and as adults share a long-term perspective on McDonald's proud heritage. In Minneapolis and Louisville, as in global markets, they are executing the Velocity Growth Plan formula successfully. They are running great restaurants, capturing the benefit from growth initiatives and anticipating new ways to best serve our customers and crew in the future.

Across the U.S., we're getting back to basics with the goal of running fast and friendly drive-thrus. We are providing tools in the kitchen, to help prepare our food fast and with the highest quality standards; running national drive-thrus challenges, which have resulted in improving speed of service; deploying new technology like drive-thru timers which are now installed in 60% of the U.S. system [Indecipherable] competitive spirits, and making bold decisions to reduce the complexity of our menu, and it's working. Thanks to these and other efforts, we are seeing continued operational improvements. Customer satisfaction scores reach an all-time high in quarter three and seconds of the drive-thru have dropped by double digits year-over-year.

Now let me turn it over to Kevin for a deeper dive into our performance around the world.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

We're pleased with our continued top line growth momentum. As Steve said, global comp sales increased 5.9% for the quarter, and each of the operating segments contributed meaningfully to our growth. We also grew global guest counts.

In the U.S., we delivered another strong quarter of sales growth. Comp sales were up 4.8%, despite the increased competitive environment. While U.S. traffic was negative for the quarter and remains our biggest opportunity, we benefited again from a healthy average check increase driven by both product mix changes and menu pricing.

Our iconic core menu continues to fuel results from the fresh beef QPC and QPC deluxe line extension to core items featured in the buy one get one for $1 national promotion. Our customers are showing us that our investment in fresh beef is paying off, as we continue to grow burger share.

Additionally, our Worldwide Favorites promotion that launched in quarter two and carried into quarter three resonated well, and customers especially love the Stroopwafel McFlurry.

The sales benefit from our modernized restaurants also contributed to our overall U.S. comp performance for the quarter. We've converted about 1,500 restaurant to EOTF this year and remain on track to complete about 2,000 projects by year-end. The U.S. now has over 9,000 EOTF restaurants, roughly two-thirds of the U.S. state.

Turning outside the U.S. The International Operated Markets segment once again delivered strong balanced results. Comp sales were up 5.6% with every one of the markets growing comp sales for the quarter and nearly all of the markets also growing guest counts. The U.K. which delivered its 54th consecutive quarter of comp sales growth continues to gain market share across nearly all dayparts, despite an increasingly competitive marketplace and declining consumer confidence. The market's performance was highlighted by a promotional food event featuring double quarter pound burgers and Spicy McNuggets along with growth in delivery, driving record high monthly sales and guest count volumes in the quarter.

France marked its 10th consecutive quarter of comp sales growth with continued all-time high market share. The market is successfully accelerating and premium and core burgers, continued focus on their value platform and family business, and delivery expansion.

Germany also marked its 10th consecutive quarter of comp sales growth. The quarter benefited from strong value messages and mobile offers along with maximizing contributions from EOTF.

Looking at the International Developmental Licensed markets, which is now our largest segment by restaurant counts, comp sales were up 8.1%. Each geographic region grew both comp sales and guest counts with Japan, China and Brazil as the largest contributors to the segment's performance.

I recently visited Latin America and had the opportunity to meet with Arcos Dorados, our strategic DL partner. Arcos has expanded McDonald's footprint across the region by opening new restaurants, and they're also making great progress on modernizing existing restaurants to EOTF. Using local expertise and innovation, Arcos is successfully executing their strategy of delivering an enhanced customer experience, providing the most relevant menu offerings and running great restaurants, despite the geopolitical and economic challenges they face.

Now, I'll turn it back to Steve to further talk about the growth accelerators driving our business.

Stephen Easterbrook -- President and Chief Executive Officer

As we've shared on prior calls, we are moving with purpose to bring the biggest benefit to the most people in the shortest possible time. This means taking bold actions designed to serve more customers tomorrow than today.

Historically, we've achieved sustained compounding growth when we offer new customer experiences on top of a strong base of operational performance. When we launched our Velocity Growth Plan in 2017, we committed to three such new customer experiences, which we call our growth accelerators. Experience the future, digital and delivery, that all about giving customers more control over how they order, how they pay and how they receive their food.

In a short period, we've moved from deployment to real business impact with each of these accelerators. Through our EOTF deployment, we've created more inviting dining environments, easier and faster ordering, and greater hospitality with guest experience leads focused on serving our customers' needs. These efforts are clearly connecting with guests.

With digital, we are working hard to fill customers' desire for simpler, smoother and more personal engagement over our digital platforms, including kiosks, drive-thrus and our mobile app. Nowhere was the power of our emerging digital ecosystem more on display during the third quarter than in China. The market drove strong comp sales growth in part by delivering tangible members-only benefits to our digital community, which now stands at 100 million registered members. Additionally, we benefit from the halo effect of promoting delivery to our growing digital network.

We continue to move quickly to deploy Dynamic Yield, which technology improves our ability to offer customers what they likely to want using machine learning to make suggestions based on time of day, weather and popular menu items. The business case is driving rapid adoption. Dynamic Yield technology is now in over 9,500 U.S. drive-thrus with full rollout in nearly every U.S. restaurants with an outdoor digital menu board expected by year-end, and we're just getting started.

Deployment across our existing drive-thru restaurants in Australia will be complete by year-end, and we're scoping future deployment for additional markets and applications, eventually including kiosks and our global mobile app. Ultimately Dynamic Yield will facilitate a range of personalization benefits where we can leverage knowledge of the customer and order patterns to provide a tailored experience in restaurants at the drive-thru and on our app.

Another milestone on our journey to embrace technology to provide simpler, smoother and more personal customer engagement over our digital channels is the creation of McD Tech Labs, which was fueled by our acquisition of Apprente. Our new team based in Silicon Valley brings first-mover advantage and a must-win area for our system, voice technology. Apprente talent and technology comes with the promise of more efficient and accurate ordering at the drive-thru, and a better experience for our customers. At the same time, we expect the technology to reduce complexity for our crew.

Whether we look across the tech or consumer world, we see voice technology playing an increasing role in all our lives. At the McDonald's, this is particularly significant because the importance of drive-thrus to our portfolio. Delivery is another area where we move rapidly to capture changing consumer habits around service and convenience. Once again, customers are responding.

In fact, they're now placing 10 McDelivery orders per second on average globally. So while we're on this call, customers will likely place 36,000 McDelivery orders. For 2019, we expect delivery to drive $4 billion or roughly 4% of global systemwide sales. That's up from 1 billion just three years ago. And it's now available from about 23,000 McDonald's restaurants in over 80 countries.

Of note, our McDelivery global average check remained steady at two times the average at restaurant check. Year-over-year, we continue to see double-digit or higher McDelivery comp sales increases across many of our major markets. In the U.S., we saw an increase in average restaurant McDelivery orders in restaurants where we recently introduced DoorDash as an additional delivery partner. This result is consistent with our experience in other markets.

The addition of multiple delivery partners in markets such as Italy, Canada, Russia and Spain help these markets reach new customer pools by appealing to customers primarily loyal to other apps and expanding coverage to geographies where existing partners may not have had a presence. As we add new delivery partners globally to reach new customers, we're also keeping pace with an evolving delivery ecosystem.

Delivery remains a big frontier for our business and we still have a long way to go even with our existing customers to encourage awareness and trial. This year over 50 markets participated in our third annual celebration of McDelivery themed McDelivery Night In, doubling the number of participating markets from last year. McDelivery Night In generated a 25% plus global McDelivery sales lift at Thursday. A halo effect on the following day drove the most ever delivery orders on a single day for us.

As we prioritize awareness and trial, we're encouraged by data showing that new or lapsed users accounted for significant portion for the global sales lift. We still have a lot of work ahead of us, but we're moving forward with great speed, energy and excitement with the McDonald's. We're confident that there is plenty of road ahead for success with McDelivery.

Now, I'll turn it back over to Kevin for a deeper dive into the financials.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

In prior quarters, I've talked about the refranchising we've undertaken to stabilize our business model, the capital we're investing in EOTF alongside our franchisees to modernize our restaurants, and the additional technology investments we're making to grow the business. I also discussed earlier this year that these strategic moves have created some short-term financial headwinds like lower gains on sales of restaurants and higher depreciation in G&A expenses.

As we're setting up our business for long-term growth, I want to take a minute to put our strong operating results for the quarter in perspective. We grew global comp sales by nearly 6%. We grew systemwide sales by 7% in constant currencies. That's well over $1.5 billion of growth across the system. We grew constant currency revenue across each of our operating segments for the second consecutive quarter.

Our franchise margin dollars were $2.5 billion growing $150 million for the quarter or a 6% increase in constant currencies. We achieved an operating margin of 44%. And EPS for the quarter was $2.11, with growth in margins being offset by lower gains on restaurant sales and a higher tax rate.

This performance reflects the strength and stability of our business model as well as the ongoing actions we're taking to position our business for sustained long-term profitable growth. In addition, consolidated company operated margins increased 20 basis points to 18.6% for the quarter. U.S. company operated margins increased 280 basis points to 15.6% benefiting from comp sales growth and improved operational performance. IOM company operated margins declined 60 basis points, but were still a healthy 21.3% as continued labor and commodity pressures more than offset comp sales growth.

In the U.S., third quarter pricing was up nearly 3%, while commodity costs increased about 2% primarily due to higher beef costs. We still expect the full year U.S. grocery basket to be up about 2% to 3%.

Turning to G&A, Steve mentioned earlier that we're committed to investing in our business for the long term. As we become more efficient with our day-to-day G&A to run the business, we're choosing to invest in technology and R&D, such as our acquisitions of Dynamic Yield and Apprente, the creation of McD Tech Labs, and an increased focus on back of the house efficiencies for our restaurants. Our year-to-date G&A spend is up 1% in constant currencies, and given our strategic investments, we expect full year G&A to be up about 1% to 2%.

Our effective tax rate was 25.3% for the quarter, and we expect our full year tax rate to be relatively similar. Foreign currency translation negatively impacted our third quarter results by $0.03 per share given the continued strength of the U.S. dollar. Based on current exchange rates, we expect foreign currency translation to negatively impact Q4 earnings by $0.01 to $0.03, which would result in a full year headwind of $0.20 to $0.22. As usual, this is directional guidance only because rates will change as we move through the year.

And finally, in September, our Board of Directors approved an 8% dividend increase to the equivalent of $5 annually. This marked the company's 43rd consecutive year of delivering a dividend increase for our shareholders and reinforces our confidence in the company's long-term strategy. Through third quarter, we returned a cumulative $22.5 billion against our three-year cash return to shareholders' target of about $25 billion, which will be completed this year.

As we talk about change and then better culture of innovation in how we work, it's important to connect these efforts to a iconic global brand. For over 60 years, the strength of the McDonald's brand has been our ability to offer a compelling menu of delicious and affordable food, made with high quality ingredients and complementing that with hospitality and convenience for our guests. An integral component of that brand magic is meeting consumers on their terms, in places where they congregate, whether it be in small towns or urban centers on the side lines of work or play or in the various other places where communities come together.

A brand and its essence is a promise, and our promise has largely remained unchanged over the years. What has changed are the ways in which we fulfill that promise. The world is different than it was in 1955. Different today even it was four years ago when we launched our turnaround. We are keenly aware that we have to be out ahead of these changes investing, executing and growing with a deep sense of urgency and purpose.

Our strong performance in the third quarter and over the past 17 quarters didn't happen in a vacuum, it's the result of our people firmly committed to our Velocity Growth Plan and the culture of innovation that is driving that plan. That culture of innovation is rooted in a relentless focus on the customer experience, making the jobs of our restaurant employees simpler and more rewarding and building an operational foundation for long-term growth and competitive success.

Operational and marketing innovations have been embedded into our DNA since the opening of store number one in Des Plaines, Illinois. Each time we elevate collectively with our franchisees and supply chain partners, where thereby founding Hamburger University in 1961; introducing the Big Mac in 1968; open the first drive-thru in 1975; introducing Extra Value Meals in 1991; launching All Day Breakfast in 2015; or accelerating delivery in 2017. We plan to seize that result as sustained growth for our business.

Indeed is through this approach that we've been able to grow guest counts, strengthen our three legged stool of employees, suppliers and franchisees, and build an enduring brand with a legacy of sustained growth. This is not to say our company and our industry are going to face challenges ahead. We have before, we will again. But by having the right people in the right places, supporting them with resources and investments they need, and embedding a culture of innovation of how we work, we know we can deliver on our brand promise in any environment, and sustain the growth trajectory, which has defined this business for over half a century.

With that said, let's begin our Q&A.

Questions and Answers:

Operator

[Operator Instructions]

Mike Cieplak -- Senior Director of Investor Relation

Our first question is from Eric Gonzalez with KeyBanc.

Eric Gonzalez -- KeyBanc -- Analyst

Hey, thanks for taking the question. You have a large hamburger competitor announcing its intention to enter the breakfast daypart with the big ad campaign and promising to drive a 10% sales mix almost immediately. I just wondering if you can comment or discuss your thoughts on how that might impact the industry in 2020? And if you see the industry shifting again toward heavy discounting in the morning, and I recognize you might not want to give too much away, but if you could comment on how you see this playing out among your competitors as you try to protect your share will be really helpful. Thanks.

Stephen Easterbrook -- President and Chief Executive Officer

Yes. Thanks, Eric. Steve, here. And by the way, apologies to everyone, if I'm coughing a little bit through this call, I'm just a bit under the weather at the moment, but yes, the breakfast competitive daypart, I mean we've seen competitors ramp up their activity during this year as well actually. So having another entrants in next year will just ensure that market share fight remains as competitive as ever. I'm not sure if it's really going to be anyone's huge best interest to have a too much value or discount led, but it is an important daypart for us to protect and grow.

I think for us, we are encouraged this current quarter because breakfast has been a little behind the rest of the day's performance until this quarter, and we've seen our breakfast sales growth pretty much in-line with the sort of sales growth we're seeing across the rest of the day. So I think that gives us encouragement that the actions that many of our local co-ops take into fight. This is a local level that beginning to get some traction. So -- but we operate a competitive market, whether it's breakfast or rest of day. So we used to fighting for our share and will carry out during next year for sure.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Andrew Charles with Cowen.

Andrew Charles -- Cowen -- Analyst

Great. Thank you. Kevin, you talked about year-to-date SG&A growth of roughly 1% with 4Q implied obviously step up to make the full-year guidance of 1% to 2%. I guess just given the accelerating rate -- exit rate of G&A in 2019 and the creation of McD Tech Labs to evaluate future technological opportunities, how should we think about what this means for 2020 G&A with street broadly has you pegged it flat G&A dollars?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Yes. Thanks, Andrew. So as I mentioned, our full year spend is expected to be up 1% to 2%. We're up basically 1% through year-to-date. So obviously you can do the math for fourth quarter. But as I mentioned in -- as I mentioned in my prepared remarks, we are more efficient on our day-to-day G&A, we're choosing to invest in certain areas of technology in R&D that's Dynamic Yield, Apprente, McD Tech Labs and back of the house efficiencies that are increasing the G&A certainly slightly this year and my expectation is that that would -- G&A would be higher in 2020 that is in 2019, mainly because as you know our acquisitions of both the Apprente and Dynamic Yield happened mid-year this year, so we'll have kind of full year impact of those in 2020.

I'd say, we believe these investments are really important to help set us up well for the long-term growth. And so we believe that's the right thing to do. As you know, over the last several years, we lowered our G&A both in absolute dollars as well as significantly as a percent of sales. As a perspective in 2014, we were -- G&A was 2.8% of sales, this year will be about 2.2% of sales. And really what we're focused on is driving growth in operating margin. And our belief is that we're going to have to spend some money in order to be able to drive operating margin. That certainly has grown significantly again from about 29%, 30% back in 2014 to mid 40s now. So you should expect the G&A will be a little higher in 2020 than it is 2019, but to us it's really about driving bottom line -- top line and bottom line growth.

Stephen Easterbrook -- President and Chief Executive Officer

Just to hook on that as well, I think, if we take Dynamic Yield as an example, clearly we've absorbed the incremental G&A that comes with the acquisition. I think part of how we challenge ourselves here is to generate the return on that investment as fast as you can, and I think we've been encouraged by the fact that we have the Dynamic Yield technology now in 9,500 drive-thrus in the U.S., and we're pretty much rolled out across. It's our Australian system as well now, and with other of our larger international markets lighting up. So, yes, we think it's -- yes, we challenge ourselves in terms of being so fiscally responsible, but growth is kind of the primary driver of all of our ambition, and I think these investments are making that for sure.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Katy Fogertey with Goldman Sachs.

Katherine Fogertey -- Goldman Sachs -- Analyst

Great. Thank you. You guys started to test out the beyond plant-based burger in Canada. I'm wondering as you saw the quarter unfold, did you, I think that not having a meatless burger was a headwind to your sales. How are you thinking about that opportunity here? Thanks.

Stephen Easterbrook -- President and Chief Executive Officer

Yes, we have -- excuse me, hey, we are interested in this, clearly. We've taken the plant-based product to Ontario, Canada. We got 28 restaurants that we only launched it with a couple of days of the quarter to go. So very early days. Clearly, there has been competitive activity, which you won't be aware of which I'm sure has helped create some more immediate interest or some shorter-term certainly response, consumer response.

I guess what we're interested is really how best to position this, get a sense of the -- as they go on to flexitarian customer, really what is the appetite for this, no pun intended, but would it drive incremental visits, is it obviously just to switch out from time to time. We want to get the taste right, we want to get the marketing right, we want to get the operations right. So there's a number of important factors that we are learning quickly, and we think Ontario is a great spot, because that will give us a good read across North America, frankly, but also into the developed markets in Europe as well. So we think the read across will be beneficial and help us speed up our intelligence on this. So more to come clearly, but it's an area of interest for sure.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Sara Senatore with Bernstein.

Sara Senatore -- Bernstein -- Analyst

Hi. Question about technology spend, and then just a quick clarification on what Kevin just said. First, I guess you are spending a lot of money and technology as you pointed out, and it certainly makes sense to leverage scale to make these investments, but our sense is that a lot of your competitors, at least in the U.S. are doing -- are also doing well perhaps without as much of an investment, and to your point about traffic still a little bit of a headwind for you.

So I guess, how do we have confidence that the amount that you're spending or the magnitude is the right amount that it isn't perhaps too much? Or you know there is -- that there is an ROI on this over time? And then just a clarification was, Kevin, you mentioned you want to see growing margin rate. So it sounded like you were growing margin, sounded like you were talking about rate as opposed to margin dollars. So should we expect margin rate to continue to expand from here? Thanks.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Yes. Let me start with the last one first, take care of that one, and then we'll come back to the tech spend. When I talk about operating margin, I was talking about kind of the mid 40% range. But certainly, you should expect that operating margin dollars will grow. Just as a perspective, if I think about kind of our restaurant margin dollars, through year-to-date through September, we've grown margin of -- restaurant margin dollars about $450 million in constant currency. So, you should expect that our ambition is to continue to grow those margin dollars as we continue on, and our expectation is to continue growing those margin dollars. Some offset to that will be G&A obviously. And as I mentioned, we think G&A will go up some in 2020, but certainly not anywhere close to offset growth in margin dollars, which would mean that our expectation is that operating margin dollars would continue to grow.

Relating to tax spend, I'll say a couple of things and if Steve wants to chime in he is certainly welcome. It's an interesting question, but I don't to prove to you or convince you, let's say that we're spending exactly the right amount. I'd say a couple of things. One, I think we have certainly proven internally and hopefully externally that we have put discipline around our G&A processes, and that we are investing in things that are driving growth for the business. As Steve mentioned, the way we look at our spend is to determine what kind of return we expect to get on that spend and that helps drive a determination of what we'll spend. We were, as you know, certainly a couple of years ago, a little behind on our technology spending, so that we did have to spend some in the last couple of years. I'll take, just to get infrastructure and things set up the right way.

And then finally I'd say, our intent is to set ourselves up for sustainable long-term growth, and that's why we're investing in technology today. Our belief is, those who aren't investing in technology at some point will be behind and we'll need to catch up and we'd rather be a little bit ahead of the curve and spend the right amount that we think will drive future growth.

Stephen Easterbrook -- President and Chief Executive Officer

Yeah, I think that I think part of the performance that we're showing say through 2019 is a result of some of the technology spend that we've invested in the last two to three years. And if I was to backtrack say four or five years, majority of our tech spend was back of house type spent, just to keep the restaurants operating. Now we've really got much more consumer facing. So that's kind of a new area of spend for us. But we're beginning to see the results, I mean as we see the self-order kiosk usage increase around the world, we see the average check growth that comes with it. As we invest in the outdoor digital menu boards and then you can plug in Dynamic Yield capabilities, we start to see again average check growth come from there. Or even just a simple as getting our infrastructure set up to enable us to meet home delivery for example, and now integrating those apps into our global mobile app. This all takes investment, but it be the mix, you see the driving visitors or driving check, but it's also driving some efficiencies. It's not always about acquisitions either. So obviously, we've made a couple of acquisitions this year, which clearly gives us an incremental G&A, which we just spoke about.

But this is also just ongoing investment through our innovation center around modernizing the equipment stack, if you like, and getting that kind of ecosystem functioning more effectively to help our managers and crew run the restaurants better. So I would say some of the proof points are out there already, but we're excited about -- continue to drive efficiencies through technology and also growth through technology, so more to come.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from David Palmer with Evercore.

David Palmer -- Evercore -- Analyst

Thanks, good morning. Question on earnings. Obviously 2019 is not going to be a year of earnings-per-share growth. But there has been significant drags in there, lease accounting, tax rate, DNA step ups currency maybe 7 plus points of drag and all those things altogether. You mentioned, G&A being somewhat higher for 2020. But just thinking about what you -- should you in 2020 in terms of earnings versus that high single-digit algorithm, what are some gives and takes aside from G&A that we should be thinking about and then on free cash flow is your capex outlook still the same, with your capex dropping from about $2.3 billion in '19 to about half that by 2023? Thank you.

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Thanks, David. Okay. Let me try and going, going through all of that. So, regarding 2020, I guess let me first say this, we still have strong belief in our long-term algorithm and targets. So I'll start with that. Regarding 2020, if I think about this year, just to put this year in perspective that obviously leads into 2020. Year-to-date, again, September, right now we've put up a 6% -- 5.9% global comp. 5% in the US. 7% systemwide sales growth in constant currencies. And as I mentioned to Sarah's question that has resulted in about $450 million of restaurant margin growth in constant currencies year-to-date. We do have higher G&A this year because of Dynamic Yield Apprente. We will have higher G&A next year because of those as well as just the amortization of some of the tech investments we made.

As I think about the gives and takes, the other couple of things will be, this year will have nearly $200 million lower -- $200 million lower of restaurant gains. We will likely have some lower gains even next year, certainly not to the extent of this year. We will have continued incremental EOTF depreciation again, not to the level of this year's increase which was roughly or a little bit over $100 million on franchise margins. We don't expect the incremental to be as much in 2020. But we will still have some incremental depreciation on those.

So that's some of the pieces, what I would say is we feel good -- well let me let me go to capex first I guess. Capex as you mentioned, it will be roughly $2.3 billion this year, roughly similar amount next year and then it should fall below $2 billion after that. And so that -- regardless of that, we believe that free cash flow will continue to grow year-upon-year. That's how our model shows here right now. And I'd say, based on our algorithm and the way we've looked at it, I feel good about the business model, I feel good about our ability to grow margins and drop that to the bottom line. I certainly feel good about our strategy and I feel good about the investments we're making in technology and R&D that we think will help set us up well for long-term growth.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from John Glass with Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much. If I could just come back to maybe the current quarter in the US and the comps, which at 4.8 were strong, but they weren't as strong as the prior quarter at least. And you've got building EOTF momentum, you talked about Dynamic Yield, you talked about expanding your aggregator networks all this would point to better results and they were slightly softer at least sequentially. So, what were the offsets were you seeing -- how the traffic fair relative to last quarter, I think you were sort of optimistic traffic a little better last quarter, but maybe it wasn't sustainable. So it was it just the relapse that to normalization. Even more color on what change in the business third quarter in the US versus the prior quarter?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Yeah, I'll start and then I'll let Steve chime in just so he can save the voice a little bit. Traffic for the third quarter, I'll say there, it wasn't that meaningful change in traffic trends in the third quarter for the US versus the first couple of quarters. So it is still negative as I mentioned, it's still our largest opportunity, but not a meaningful change in trend in the third quarter versus second quarter.

You will recall, as we mentioned on our second quarter call, we had a couple benefits in the second quarter, one related to the timing of Easter holiday, one relating to some promotional activity we had related to Filet-O-Fish that helped second quarter, I'll say, be a little bit above trend, if you will. So third quarter -- if you think about two-year stacks, third quarter is relatively similar to first quarter. And the other thing I'd say related to it, within the quarter, because I know there has been some chatter out there about how the quarter got weaker for us as the quarter went on. All three months were relatively similar in terms of comp sales. So each month was between 4.5 and 5.5 comp. So it's not like the world fell off in August, September or anything like that.

And the other thing I would say is there is certainly was some competitive pressure mid-August, probably through mid-September that seem to lessen as we ended the quarter. So, I think, all of those factors kind of impacted our net result in the quarter. As you mentioned, EOTF is a benefit; third quarter benefit was relatively similar to second quarter benefit. And I would expect that to be similar in the fourth quarter before it starts leveling off for next year.

Stephen Easterbrook -- President and Chief Executive Officer

I think the only thing I would add is, if we kind of drill into our details of point ones here and point ones there, some of the work we've done on simplifying our menu, as maybe we had a little bit of resistance when we move away from say signature crafted. Now the flip side is, it helped us run better restaurants, and we saw our drive-thru service times in the U.S. improve by around 20 seconds across the quarter year-on-year.

So I think we're still making the right decisions for the long term, but there is going to be a little bit of short-term resistance when you simplify the menu. So a little bits and pieces, but no fundamental shift in momentum. I mean, it really was balanced sales growth across dayparts across the menu actually, which I think is what's giving us confidence, and some of the accelerator initiatives that we've launched are delivering consistently with sorts of performance that we shared with you in the past.

Operator

Our next question is from John Ivankoe with JP Morgan.

John Ivankoe -- JP Morgan -- Analyst

Hi. Thank you. Actually a follow-up on that as well. You obviously mentioned improving drive-thru times, which is obviously important record guest satisfaction scores. I mean these are things that would normally have driven a positive traffic comp for McDonald's may be in the past. The comments that you made on franchisee store level cash flow 11 months, I think of a positive year-on-year cash flow, how much of that was due to some of the changes that you made from a promotional perspective? And what's the postmortem on giving more of the value back to some of the local partners? Are you in the place where you think you're optimizing profitability and traffic or might there be kind of a shift in balance if you will, in 2020 where we might see more value in order to drive traffic maybe to some extent at the sake of profitability?

Stephen Easterbrook -- President and Chief Executive Officer

Yes, John, it's Stephen. As you know, it is that delicate balance, I mean, to get the consistent top line growth, and have a profitable growth for owner/operators is clearly critical. We won't -- drives the motivation and it drives the confidence, it drives the ability and willingness to keep reinvesting in the initiatives as we -- as we've identified them. But, yes, we don't want to give up customers, and it's fair to say that the guest count declines. We do see. There's a couple of things I will share with you. Once is, the lower average check level. So clearly there is a value component in there, and it's just a case of how do we address that. Is that more of the local level, is at a national level? I don't know what U.S. teams working through that.

Another way, we cut and dice this is, across the U.S., we have 56 co-ops, and if we look at the fourth quartile of those challenged performing co-ops. See, clearly 25% of our co-ops, but actually more than half of our guest count decline is explained in those 14. So we're putting more support and activity into those co-ops to see if we can just pull down that tail [Indecipherable] margin will let us collectively as well. We are beginning to see traction there as well. So there is a number of different ways we're approaching this, but we want to remain competitive on value clearly.

Getting back to the drive-thru service times, yes, we will see incremental visits as we continue to improve service. I mean, fundamentally, we are a quick service restaurant, and our trends had been heading the wrong way for too many years, and are delighted at how our structure we're getting, given the focus we put on it this year. And we know customers will notice 20 seconds, particularly the time for customers on those busy peak hours, yet with us the breakfast, brunch [Phonetic] or lunch time. Those savings they don't actually notice that one just one visit, but as we consistently run better restaurants, we believe that will keep us in a strong competitive position going forward.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from David Tarantino with Baird.

David Tarantino -- Baird -- Analyst

Hi. Good morning. Just a question on the technology investments you made, and specifically Dynamic Yield? I guess what I was wondering, if you could comment on, on what you're seeing so far as you roll it out, and in terms of the customer response or the business impact? And how you see that evolving, as I guess customers get more accustomed to using the technology?

Stephen Easterbrook -- President and Chief Executive Officer

Yes, at the moment, we've effectively rolled out the core capability of Dynamic Yield. It's kind of what we would say suggestive sell. The beauty of this is, there is nothing that customer has to adjust to. They almost don't know that this experience is happening for them. We've got Dynamic digital menu boards and effectively as they start to place their order, the menu boards responds to that ordering process, and therefore are more likely to suggest items that customer will want, and less likely to show items that customers less likely to want, and of course machine learning helps to improve that, particularly given the transaction levels we have across our business, we can pretty really very quickly.

There is further capabilities as we're learning, so for example, is an area now where they can offer trending now, which will actually pick up items either in a restaurant or local group of restaurants that are proven to be particularly popular at that point in time. So there's kind of get another level of, let's call it, dynamic interaction going there.

And again, at this point, we're only really talking about having it on the outdoor digital menu boards. But suffice to say, the team, part of the investment we're making in the business with talent and an expertise is to look to how can we integrate that into the self-order kiosk and perhaps ultimately the global mobile app as well.

So, I think, we're at early stages, already very encouraged about the results we're seeing. The speed with which we can execute and roll this out deploy this is giving us a lot of confidence, so we can get this across. I guess, we've now got an outdoor digital menu boards in over 10,000 restaurants in the U.S. and the majority of our former international lead markets are pretty much fully deployed as well. U.K. has got a little bit of catching up to do. But, as we say, this is encouraging operators to invest in the technology because they seem to return. And as I say, this is just the core basic capability, and there's more we can add to it.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Matt DiFrisco with Guggenheim.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Thank you. Just had a couple of follow-up questions. I guess, can you just comment on how that 3% price should look going forward. Is that something that is going to be held in? And then I think in previous quarters you described how much of that was contributing to the check in 2Q, is about a third of the check or so. If you could just sort of draw that line for us?

And then a clarification, I think you mentioned on the prepared remarks hamburger share was gained or you gain hamburger share, but you're traffic was negative. Does that imply then there were some near-term increased competitive pressure around chicken and you lost a little bit of business on the chicken side in the near term in the U.S.?

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Okay. I'll start. Price, Matt, let me start with how we think about it. I think we've talked before, but we look at various things. Certainly food away from home is one guide post, but also we look at -- and the pricing we talk about is pricing system wide, which as you know, 95% of those restaurants are run by franchisees determining that -- determining that pricing. But certainly, I think as they consider their pricing, they're also looking at cost pressures, whether that's labor and commodities, etc. And it's really about trying to strategically balance, offsetting some of those cost pressures with kind of what a customer is willing to pay.

So there isn't a pure formula that 3% that -- and I think we said nearly 3%, it actually was a little bit below 3%, but close to 3%. And the impact to our comp is actually a little bit less than that because while the pure price -- what I quoted on pure price increase, but you had a little bit resistance. And so the actual contribution to comp ends up being a little bit below that. But it still is roughly that third -- two-thirds, about a third from price, roughly two-thirds from product mix for various reasons including Dynamic Yield, kiosk usage, delivery, all the things that we've been talking about. So that's the story on pricing.

Related to the burger share, so -- and we said that in the U.S. we did gain hamburger share in last quarter. I think it's fair to assume with everything going on in the quarter with chicken that we did go a little bit the opposite way on chicken. So I think that's a fair conclusion. I'd only add to that if we look at the top 11 markets, we actually gained high yield share and QSR share in all 10 of the largest markets beyond the US as well including some extremely strong gains in markets like the UK, Russia, Australia, France is an all-time market share high for example. So I think we have proven to be competitive and driving the broader market dynamic around the world actually, which is helping underpin the sales momentum and business momentum.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Chris O'Cull with Stifel.

Chris O'Cull -- Stifel -- Analyst

Thanks. Steve, there's been a lot of discussion about how Dynamic Yield tech support suggestive selling. But I would think the new digital menu boards would also allow the company to do a better job of price optimization, meaning, stores could be able to adjust prices more frequently. Can you describe how the new menu boards or digital boards will change kind of the company's approach to pricing?

Stephen Easterbrook -- President and Chief Executive Officer

Yeah. We typically choice to avoid that. I didn't -- partly just because I think is part of the brand promise we have with customers is just that reliability in knowing what that typical or combination costs. So, it has been discussed in time. So I know others out there and that's kind of, if you like ultimate dynamic pricing capability, but that's not really kind of underpinning the business -- the way we want to do business. And so we stay away from that. We try to have a careful thoughtful approach with our kind of pricing consultants if you like having just to make periodic adjustments and just give customers that kind of assurance reliability.

Mike Cieplak -- Senior Director of Investor Relation

Our next question is from Brian Bittner with Oppenheimer.

Brian Bittner -- Oppenheimer -- Analyst

Thanks. Good morning. First just a clarification on David Palmer's question on 2020. Kevin, should we be interpreting your answer in a way that we should be modeling 2020 is a below algorithm year for earnings, or no? And just on the store level margins in the US, a meaningful trend change in the margins there up 280 bps this quarter. Can you just dive a little deeper on what specifically changed in the margin dynamics this quarter for the US versus last several quarters. And should we expect it to continue? Thanks.

Stephen Easterbrook -- President and Chief Executive Officer

Yeah, let me talk about the US margins first. In my prepared remarks, I mentioned and what I called operational performance improvements. And really what that means as unexciting as this may be is it's kind of the basics of running better restaurants. We keep talking about just running better restaurants and getting more efficient in running restaurants. But it's things like reducing complexity in the restaurants, simplifying procedures, focusing on efficiencies and the drive-thru, being more diligence with -- more diligent with our labor scheduling and staffing, basic food control. So it's all the stuff that we talk about when it's kind of just managing a restaurant really well, and I think putting more of a focus on that has helped our company operated folks focus on that.

To be fair, I think the other piece I would just throw in there a little bit is, there is less disruption going on this year then there was last year from a couple of standpoint, a couple of pieces. One, we are almost completed with the EOTF in the company-operated restaurants. So by the end of this year, we'll have all of the EOTF projects on our company-operated restaurants completed. That's one thing that does -- is a distraction and disruption to the restaurants.

The other thing, as you know is we've been refranchising over the last several years and that becomes a little bit of a disruption certainly to the company-operated business. So the fact that that's more stable and we've kind of settled in where we are now, I think helps us the stability of running the restaurants on the company operated side. So all of those things I think go in the play into why you said, we saw some of that improvement this year.

I think as we look forward in the near term in the US, we still do have some pressures like the EOTF depreciation, some labor costs, but I think kind of similar range that we've been in the 15% to 16%-ish range in the US is probably a reasonable way to think about it going forward. Regarding, kind of 2020, in the fourth quarter we will give more details in going through our actual outlook that will provide more detailed guidance. I'll leave what I've said for now as general guidance and certainly we'll will get into more details as we get to year end. We're in the midst of going through our detailed planning right as we speak, and so I don't want to get too far ahead before we actually complete that process.

Mike Cieplak -- Senior Director of Investor Relation

That completes our call this morning. Thanks everybody for joining us. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Mike Cieplak -- Senior Director of Investor Relation

Stephen Easterbrook -- President and Chief Executive Officer

Kevin Ozan -- Executive Vice President and Chief Financial Officer

Eric Gonzalez -- KeyBanc -- Analyst

Andrew Charles -- Cowen -- Analyst

Katherine Fogertey -- Goldman Sachs -- Analyst

Sara Senatore -- Bernstein -- Analyst

David Palmer -- Evercore -- Analyst

John Glass -- Morgan Stanley -- Analyst

John Ivankoe -- JP Morgan -- Analyst

David Tarantino -- Baird -- Analyst

Matt DiFrisco -- Guggenheim Securities -- Analyst

Chris O'Cull -- Stifel -- Analyst

Brian Bittner -- Oppenheimer -- Analyst

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