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

McDonald's executives said the world's biggest hamburger chain continued to outpace the overall fast-food sector, which is struggling with long-term U.S. unemployment and economic weakness domestically and in Europe.

But investors had been hoping the company's earnings report would show more momentum from the restaurants sector, which is often an early indicator of renewed economic growth. The segment has shown signs of recovery.

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.

McDonald's per-share net income for the second quarter grew 15 percent to $1.13, beating analysts' average forecast of $1.12 per share, according to Thomson Reuters I/B/E/S.

Global same-store sales rose 4.8 percent for the 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.

McDonald's said global same-store sales for July looked to be in line or higher than those reported for the second quarter.

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 second 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.

The company 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 a year.

McDonald's lately has received a big boost from its roll-out of espresso-based coffee and other high-margin drinks like frappes. That business is exceeding the company's goal of adding $125,000 of incremental sales per unit, Chief Operating Officer Don Thompson said in a conference call with analysts.

New fruit smoothies, rolled out earlier this month, are blowing away the company's high-end projections, Thompson said.

The company's beverage expansion was seen as a direct attack on the core business of coffee shop chain Starbucks Corp , but so far the two companies appear to be appealing to different diners.

Earlier this week, Starbucks said sales at restaurants open at least 13 months jumped 9 percent in 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 promoting its competing frappes.

McDonald's brought out a morning Dollar Menu nationwide in January. Its breakfast business accounts for about 25 percent of U.S. sales, and its $1 U.S. breakfast menu caused a slight depression in average spending per diner during the quarter. Nevertheless, executives said the related boost in traffic was a trade-off they could live with since it helped fuel the rise in same-store sales.

McDonald's Chief Executive Jim Skinner usually leads the analyst call but did not participate on Friday.

McDonald's shares were down 2 percent, or $1.42, at $69.98 in afternoon trading on the New York Stock Exchange.

(Reporting by Lisa Baertlein in Los Angeles and Martinne Geller in New York; editing by Michele Gershberg, Phil Berlowitz and John Wallace)

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