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UPDATE 2-Tim Hortons' profit up 8 percent, chain eyes more than coffee

Solarina Ho
Thursday, 7 Nov 2013 | 3:12 PM ET

* Third-quarter profit up 8 pct to C$0.75/share

* Revenue C$825.4 mln vs estimate C$824.5 mln

* U.S. same-store sales rose by 3 pct

* Shares edge higher after results

TORONTO, Nov 7 (Reuters) - Canadian coffee and doughnut chain Tim Hortons Inc , which is exploring ways to expand in an intensely competitive market, reported an 8 percent rise in quarterly profit as same-store sales improved slightly in the United States.

Shares of the company, which says it sells nearly eight of every 10 cups of coffee sold in Canada, edged higher following the results, which included a 3 percent rise in revenue.

Tim Hortons reported that U.S. same-store sales grew by 3 percent, while Canadian same-store sales rose 1.7 percent.

"The third quarter was one of progress and improved momentum for us. And our key indicators are moving in the right directions," Chief Executive Officer Marc Caira told analysts in a conference call.

"However, while encouraging, we know that we have a lot of work more to do. Last quarter, I spoke to you about a new reality facing the food service industry."

Caira, a long-time Nestle SA executive, said the company has the capacity to expand the brand beyond the traditional restaurant into alternative channels.

Tim Hortons needed to "set the agenda on coffee" in Canada, Caira said, but also attract new and younger consumers looking for more than black brewed coffee. The younger demographic looks for specialty drinks like other milk-based beverages, juice blends and alternative coffee roasts.

The chain is facing intense and growing competition from U.S. competitors such as McDonald's Corp and Starbucks Corp, who have also ramped up their offerings and promotions to attract new customers.

Last week, Tim Hortons said it would start offering a dark roast coffee option in pilot locations, the first time in its nearly 50-year history that it has offered customers a new blend of coffee.

For the United States, Caira reiterated the company's plans to enter new markets with partners that are well capitalized, understand the local food-service market, and have access to market resource like supply chain and labor.

Internationally, Caira said Tim Hortons would remain focused on its Middle East operations and that it "will get to the rest of the world, in due time."

"In due time - it's not far down the road," he added. "I'm very optimistic about international opportunities."

The company hopes to present its strategic plan around the first quarter of 2014.

UNDER PRESSURE

Caira's plans are in line with the demands of activist shareholders who pressured Tim Hortons earlier this year to boost returns.

The company, led since July 2 by Caira, said in August it would expand its share buyback plan by C$900 million to C$1 billion.

During the quarter, the chain opened 13 restaurants in the United States and 34 in Canada. It also began implementing changes, including structural enhancements at more than 500 restaurants to help minimize drive-through wait times for customers, simplify navigating through the menu and speed up in-store line-ups.

The company's net income rose to C$113.9 million ($109.4 million), or 75 Canadian cents per share, in the third quarter ended Sept. 29 from C$105.7 million, or 68 Canadian cents per share, a year earlier.

Total revenue rose 3 percent to C$825.4 million.

Analysts had expected a profit of 77 Canadian cents per share and revenue of C$824.5 million, according to Thomson Reuters I/B/E/S.

Operating income was up 9.9 percent to C$168.8 million.

Tim Hortons' stock, which has risen some 28 percent this year, was trading up 17 Canadian cents, at C$62.77 on the Toronto Stock Exchange.

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