MCD McDonalds Corp

By Julie Jargon 

McDonald's Corp. said Tuesday that its $1 dollar drinks promotion and a new line of burgers helped reverse a sales slump in its U.S. business.

The burger giant, which beat analysts' expectations on earnings, has been introducing new menu items priced with its core, budget-conscious customers in mind and adding more conveniences like self-order kiosks and food delivery. It has also been remodeling many of its restaurants.

The chain reported stronger than expected domestic same-store sales growth in the second quarter, contributing to the strongest global same-store sales and traffic growth in more than five years.

Revenue fell for the quarter, however, as McDonald's sold more of its restaurants to franchisees and is no longer collecting the full amount of revenue from them, the company said.

Investors cheered the results, sending McDonald's shares up nearly 3% in morning trading.

McDonald's recently found that most of the consumers it had lost in recent years had defected to rival fast-food chains serving cheaper food rather than the higher-priced fast casual restaurants it had been trying to emulate with healthier items such as salads and snack wraps.

Now, the company is focusing on the fast-food customer by improving its core menu items, including its hamburgers. McDonald's recently said it would begin using fresh, rather than frozen, beef in its quarter-pound burgers and it is currently rolling out a line of semi-customizable burgers topped with different ingredients than the usual tomatoes and lettuce.

Those burgers, while more expensive than its Big Macs, are a lot cheaper than the ones sold by such "better burger" restaurants as Five Guys.

The company has placed a tight focus lately on operations, with plans to encourage underperforming franchisees to sell their restaurants, resulting in fewer, better operators. RBC Capital Markets, which expects more than 1,000 McDonald's in the U.S. to change hands, says the move could prove to be a "powerful sales driver."

McDonald's also agreed to put up 55% of the cost of certain restaurant upgrades if franchisees agreed to fund an advertising campaign for a national value menu.

The majority of its U.S. franchisees approved the advertising funding and will be renovating their restaurants to include new dessert counters and self-order kiosks.

McDonald's reported net income of $1.4 billion, or $1.70 per share, up from $1.09 billion, or $1.25 per share a year before. Analysts were expecting earnings per share of $1.62.

Revenue for the quarter totaled $6.05 billion, down from $6.27 billion last year, but above the $5.96 billion analysts expected.

Same-store sales rose 6.6% globally and 3.9% in the U.S., beating expectations of 3.7% and 2.9%, respectively.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

July 25, 2017 10:07 ET (14:07 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.