* Q2 EPS C$0.54 vs C$0.43 yr ago
* U.S. same-store sales up 3.1 percent
* Canadian same-store sales up 6.4 percent
* Shares surge nearly 8 percent
(Adds conference call details)
By Solarina Ho
TORONTO, Aug 12 Tim Hortons Inc THI.TO,
Canada's largest restaurant chain, posted a 21 percent rise in
net income on Thursday and said it is selling its 50 percent
interest in Maidstone Bakeries to its European joint venture
partner Aryzta AG (ARYN.S). [nLDE67B17Z]
Tim Hortons' stock jumped almost 8 percent to two-year
highs, following the announcements.
Maidstone Bakeries, located in Brantford, Ontario,
southwest of Toronto, was built about eight years ago
specifically to supply Tim Hortons franchisees with partially
baked, or "par-baked", flash-frozen doughnuts and breads.
"The C$475 million that it's worth was much higher than we
thought. We thought it was probably worth about half that, so
that's pretty impressive," said analyst Brian Yarbrough of
Edward Jones, who said he was not surprised by the sale.
"They'll probably utilize that for shareholders. I don't
know if it'll be in the form of a big buyback, or a dividend,"
"We are considering possible options for the use of the net
proceeds, including potential avenues that can return value to
shareholders," said Chief Financial Officer Cynthia Devine
during a conference call with analysts.
Yarbrough said the company generates a lot of cash and
collects royalties and rent from its franchisees, so it is
unlikely the sale was intended to raise money to accelerate its
investment in its U.S. operations.
Under the terms of the deal, Tim Hortons will continue to
use the bakery for its doughnuts until early 2016.
"Given the ability to potentially leverage the facility for
other channels such as grocery ... and the international nature
of their tax structure, this facility clearly has more economic
value to Aryzta than to Tim Hortons," said Chief Executive Don
Schroeder during the call.
A COMPETITIVE U.S. MARKET
Tim Hortons, which specializes in coffee, baked goods and
home-style lunches, also said on Thursday that its
second-quarter earnings climbed to C$94.1 million ($90
million), or 54 Canadian cents a share, from C$77.8 million, or
43 Canadian cents, in the same period a year earlier.
Analysts had forecast earnings of 50 Canadian cents a
share, according to Thomson Reuters I/B/E/S.
Revenue rose 5.7 percent to C$639.9 million, driven
primarily by systemwide sales growth of 9.2 percent on a
constant currency basis.
U.S. same-store sales, or sales at stores open for more
than a year, grew by 3.1 percent in the quarter and grew by 6.4
percent in Canada.
Tim Hortons, which has grown to become a Canadian cultural
fixture, and even operates a franchise at the Canadian Forces
base in Kandahar, Afghanistan, operates more than 3,000 outlets
in Canada and nearly 600 in United States.
With analysts projecting only a few years of growth left in
its domestic market, investors have been keen to see its growth
"Longer term, that's where all the growth is going to come
from. They only have enough growth in Canada for probably three
to four years," said Yarbrough, noting the company's U.S.
operating income is small compared with Canada's.
"They really have to ramp (U.S.) profitability up,"
Yarbrough said. "The U.S. market offers huge opportunity, but
it's just a lot more competitive ... it's a lot tougher for
them in the U.S."
CEO Schroeder noted that the U.S. economic recovery still
has "a long way to go."
The company said it will make an announcement later this
year about their international investment plans.
"The playing field is littered with people that have moved
too quickly, so we continue to do in-depth analysis of the
options available to us," Schroeder said.
The company's shares were up C$2.27, or 6.41 percent, at
C$37.71 on the Toronto Stock Exchange by late afternoon
Thursday, after rising as high as C$38.22.