McDonald's Corp reported weaker-than expected sales at established restaurants, overshadowing a profit beat for the second quarter, and shares dropped 2 percent.

Investors had been hoping to see more momentum from restaurants, often an early indicator of renewed economic growth, given that the segment had shown signs of recovery.

McDonald's total same-store sales rose 4.8 percent for the second quarter and for June, with U.S. restaurants benefiting from new drinks like frappes and the Dollar Menu. Analysts were expecting increases of around 5 percent for both periods.

Janney Capital Markets analyst Mark Kalinowski said investor concerns were focused on the June same-store sales miss and the company's expectation that foreign currency translation will weigh on full-year earnings.

The world's biggest hamburger chain also said global same-store sales for July looked to be in line or higher than those reported for the second quarter.

Net income for the June quarter grew 15 percent to $1.13 per share, beating analysts' average call for a profit of $1.12 per share, according to Thomson Reuters I/B/E/S.

There are pretty high expectations across the restaurant space. A penny (profit) beat is just not going to cut it, said RBC Capital Markets analyst Larry Miller, who added that the company's U.S. and global margins hit the highest level since he's been following the company.

U.S. SAME-STORE SALES UP

Second-quarter revenue, which included sales from company-owned restaurants plus royalties from franchisees and other fees, rose 5 percent to $5.95 billion.

In June, sales at U.S. restaurants open at least 13 months rose 3.7 percent, compared with Wall Street's target for a 4.3 percent increase.

Same-store sales rose 4.7 percent in Europe and 6 percent in the Asia-Pacific, Middle East and Africa unit, versus analysts' calls for gains of 5.3 percent and 6.1 percent, respectively.

For the quarter, same-store sales rose 3.7 percent in the United States, 5.2 percent in Europe and 4.6 percent in Asia-Pacific, Middle East and Africa. McDonald's said currency fluctuations had no impact on its quarterly earnings.

McDonald's has been stealing market share from rivals like KFC owner Yum Brands Inc , which recently reported flat sales at U.S. restaurants open at least one year.

The Golden Arches is not giving their customers reason to go elsewhere, analyst Kalinowski said.

The hamburger chain also has gotten a big boost from its roll-out of espresso-based coffee and other high-margin beverages like frappes.

In a sign of demand for its new drinks, the company canceled plans to offer free samples of its fruit smoothies this week, saying it wanted to avoid product shortages.

The company's move into coffee was seen as a direct attack on Starbucks Corp's core business, but so far the two companies appear to be appealing to different customers.

To that end, Starbucks said sales at restaurants open at least 13 months jumped 9 percent for the June quarter, driven by a 6 percent increase in traffic and a 3 percent rise in spending per visit.

Starbucks introduced however-you-want-it Frappuccinos in the United States and Canada in May, a move that contributed 2 percentage points to U.S. same store sales, as McDonald's was expanding its successful new beverage program from espresso drinks to frappes.

(Reporting by Lisa Baertlein and Martinne Geller, editing by Michele Gershberg, Gerald E. McCormick, Lisa Von Ahn and Phil Berlowitz)

Canada