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McDonald's Heats Up on Cold Drinks

McDonald's shares touch record highs as the burger chain posts better-than-expected same-store sales for July.



) --


(MCD) - Get Free Report

shares touched record highs Monday as strong demand for its Real Fruit Smoothies and Frappes led same-store sales to surge 7% in July.

The closely watched figure of same-store sales -- or sales at stores open at least one year -- easily topped analyst expectations for comps growth of 4.8%, and was the burger-and-fries chain's biggest monthly increase since April of 2009.

McDonald's said strong comps growth was fueled by its beverage business, extended hours and strong sales in Asia. Comps growth of 5.7% in the U.S. was boosted in part by sales of its recently launched Real Fruit Smoothies and Frappes from its McCafe line of drinks.

Demand for iced beverages in July came as no surprise to the National Weather Service, which said the month was one of the hottest on record across the nation.

R.W. Baird analyst David E. Tarantino boosted his earnings forecast for McDonald's by a penny based on its strong July sales figures. He now expects the company to earn $1.24 per share in the current quarter. Analysts polled by Thomson Reuters expect McDonald's to earn $1.23 per share.

Part of the McCafe strategy for McDonald's has been to lure market share away from coffee rival


(SBUX) - Get Free Report

, which last month posted better-than-expected revenues and adjusted profits per share that surpassed analysts' consensus call.

>>Starbucks Brews a Stronger Dividend

McDonald's stole a good chunk of Starbucks' market share when it upgraded its coffee in 2006. The lower priced option from McDonald's became popular among price-sensitive customers and created new competition for Starbucks, pushing the average number of customers visiting a Starbucks store lower by around 13% from 2005 to 2007.

In 2008, McDonald's officially launched its McCafe, further intensifying competition between the brands. The timing of the launch coincided with a period of spending cutbacks among consumers -- cutbacks that were already stinging Starbucks, and that eventually led the coffee giant to close around 890 stores in 2008 and 2009.

The fast food restaurant operator said last month each region of the world in which it operates generated higher comps, traffic and profits in the quarter ended June 30. McDonald's posted

double-digit profit gains

for the period.

Overall global quarterly comps growth of 4.8% in the quarter, helped by its dollar menu and an expanded list of coffee drinks and other beverages, came up short of expectations, however, and McDonald's stock fell more than 2%, closing below $70 per share the day it released the quarterly results.

>>McDonald's Falters on Comps

McDonald's shares have rebounded since then, hitting an all-time high of $73.33 in morning trading Monday, and changing hands up 1.5%, to $72.83, in afternoon activity following the release of its better-than-expected July comps figures.

In July, McDonald's same-store sales surged 10.1% in its Asia, Pacific, Middle East and Africa regions, led by growth in Japan, Australia and China. Value offerings, menu variety and breakfast items continued to deliver results in those regions, the Golden Arches said.

Comps growth of 5.3% in Europe was led by strength in France, the U.K. and Germany.

System-wide sales, which includes sales at stores open less than 13 months, rose 6.8%.

McDonald's Stock Rating Report (MCD) Rating and Financial Analysis

-- Reported by Miriam Marcus Reimer from New York.


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