McDonald's shares down 4 percent after disappointing US sales

McDonald's (NYSE: MCD) shares fell more than 3 percent Tuesday as the company's latest results showed that its U.S. turnaround is still a ways off.

Second-quarter same-stores sales growth in the U.S. fell short of estimates, raising doubts about when its All-Day Breakfast and McPick 2 promotions are having the desired effect.

McDonald's introduced all-day breakfast at its U.S. restaurants in October in a bid to attract more diners in the face of growing competition from rivals such as Chipotle Mexican Grill (NYSE: CMG) and Shake Shack (NYSE: SHAK). The move has helped the fast food giant see an uptick in sales, but the growth may not be strong enough for some investors.

Also, both of these promotions may be drawing in more customers, but sales growth is suffering because the items they are buying are less expensive.

Conlumino CEO Neil Saunders said McDonald's results weren't "disastrous."

"They remain in positive territory and show that the changes McDonald's has made continue to gain favor with customers," Saunders said. "That said, they raise a question: is McDonald's turnaround plan running out of steam or is this simply a blip in growth? Perhaps unhelpfully, the truth is that the more sluggish performance is a mix of both."

The company reported net income of $1.09 billion, or $1.25 per share, on sales of $6.26 billion. Net income included 20 cents in strategic charges, so McDonald's earned $1.45 a share on an adjusted basis, which is a bit higher than analysts were expecting.

Analysts called for the fast food giant to post earnings of $1.38 a share on revenues of $6.27 billion, according to a consensus estimate from Thomson Reuters.

Same-store sales in the U.S. rose 1.8 percent, sharply below analysts' expectations of 3.4 percent growth, according to FactSet.

Globally, the company saw same-store sales rise 3.1 percent. However, Wall Street expected the company to report quarterly same-store-sales growth of 3.6 percent, according to FactSet.

Although the U.S. trends were weaker than expected, it was still the fourth-consecutive quarter McDonald's saw positive same-store sales growth across all its business segments, the company said.

"We're making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets," McDonald's President and Chief Executive Officer Steve Easterbrook said in a written statement.

McDonald's blamed part of the weaker-than-expected U.S. performance on soft restaurant industry traffic.

In a research note Tuesday, Jefferies analyst Andy Barish called the top of the U.S. restaurant cycle.

"We believe the industry has at least 18 months of challenges ahead in terms of softer [same-store sales growth] and higher labor costs because of capacity growth and labor tightness, a year after the stock peak in summer '15," Barish said in a research note.

"There is no doubt that in the U.S. the market as a whole was weak across the reporting period, with lower growth in consumer expenditure on fast food and casual dining," Saunders said. "Indeed, this trend has been evident in the recent results of rivals like Starbucks (NASDAQ: SBUX) and Yum! Brands (NYSE: YUM), both of which saw a dip in their revenue growth. Given its exposure to the market there is no reason McDonald's should be immune from this trend."

In McDonald's so-called High Growth segment same-store sales rose 1.6 percent, led by positive growth n China and Russia. The International Lead segment saw same-store sales up 2.6 percent during the quarter. In Foundational markets, same-store sales gained 7.7 percent, reflecting strong performance in Japan and other markets.

CORRECTION: McDonald's earned $1.45 a share in the latest quarter, on an adjusted basis, which is higher than analysts were expecting.

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