* Announces C$900 mln recapitalization and share buyback
* Commits to U.S. market, focused on working with
* Cuts growth forecast even though quarterly profit tops
* Appoints Encana CFO and BMO Capital Markets CEO to board
By Solarina Ho and Bhaswati Mukhopadhyay
Aug 8 Tim Hortons Inc, the Canadian
coffee and doughnut chain under shareholder pressure to boost
returns, said on Thursday it was expanding its buyback plan by
C$900 million ($863.4 million) and its new CEO called the
challenging environment the "new reality."
The company, led since July 2 by long-time Nestle SA
executive Marc Caira, also announced plans for its
business in the United States that are in line with demands of
activist investors who want the company to cut back on the
investment of its own cash in the United States and turn to
Hedge funds Scout Capital Management and Highfields Capital,
owners of almost 10 percent of Tim Hortons stock, have urged Tim
Hortons to increase debt levels to fund a share buyback, as well
as address concerns about the U.S. expansion, and to name
directors to the board who have more financial expertise.
"Clearly, we are operating in a very challenging,
competitive and volatile environment," Caira told analysts
during a conference call. "We need to accept this new reality
and effectively compete in it."
He said sales in newer U.S. markets were not generating
strong returns, pointing to the need for changes to the
financial model and performance there.
FINANCIAL EXPERTISE ON BOARD
The company also named two new directors: Sherri Brillon,
chief financial officer at Encana Corporation, and
Thomas Milroy, chief executive of BMO Capital Markets.
Shares of Tim's, which says it sells eight of every 10 cups
of coffee sold in Canada, have risen about 10 percent since the
hedge funds went public with their concerns three months ago.
Shares rose 0.7 percent to close at C$59.90 on Thursday.
The company said it was targeting a total of C$1 billion in
share buybacks over the next 12 months, funded by bank debt
and/or newly issued bonds. This includes C$100 million under its
existing share buyback plan.
Executives said the company has repurchased about C$1.7
billion in shares since its 2006 initial public offering, and
raised its dividend by an average of nearly 21 percent a year.
'NO SACRED COWS'
Tim Hortons reported a 14 percent rise in second-quarter
profit but said it expects same-store sales growth for the year
to come in below earlier targeted ranges of 2 to 4 percent in
Canada, and 3 to 5 percent in the United States.
Some possible changes included a "tough look" at operations
and at what products it might consider discontinuing. "There's
no sacred cows here," said Caira.
Tim Hortons' competitors range from McDonald's Corp
to Starbucks Corp.
Net income in the quarter rose to C$123.7 million, or 81
Canadian cents per share, compared with C$108.1 million or 69
Canadian cents per share a year earlier.
Analysts had expected earnings of 75 Canadian cents a share,
according to Thomson Reuters I/B/E/S.
Total revenue rose 2 percent to C$800.1 million ($767.5
Same-store sales grew 1.5 percent in Canada and 1.4 percent
in the United States. That is down from 1.8 percent growth in
Canada and 4.9 percent growth in the United States a year ago,
but up from 0.3 percent and 0.5 percent declines in the first