The price of your morning double-double may be headed up this year as the cost of coffee climbs higher, the chief executive of Tim Hortons said Wednesday as the company reported its latest quarterly earnings.
Don Schroeder, president and chief executive of the ubiquitous Canadian coffee-and-doughnut chain, said the rising cost of coffee — which is about twice where it was in June last year — as well as other commodities key to making its doughnuts and other goodies will be passed on to its franchisees.
Tim Hortons raised prices at its U.S. locations by about three per cent last week and Schroeder said the company is meeting with its store owners regarding pricing in Canada.
“While we know they will be cautious and prudent when looking at price increases that affect their guests, we expect that certain regions and markets in Canada will need to take price increases,” Schroeder told a conference call with financial analysts.
The company posted a fourth-quarter profit of $377.1 million, or $2.19 per share, boosted by the sale of its stake in Maidstone Bakeries in the fourth quarter of 2010. The profit compared with a profit of $91 million, or 51 cents per share, in the last three months of 2009.
The company saw a pre-tax gain of $361 million from the sale of its 50 per cent stake in Maidstone, a bakery the company was forced to sell last August after its Swiss partner invoked a contract provision forcing Tim Hortons to either buy or sell.
Sales slipped to $437 million from $464.6 million a year ago, which was partly due an extra week in the fourth quarter of 2009 for accounting purposes. Overall revenue, which also includes revenue from Tim Hortons franchise operations, declined 3.5 per cent to $643.5 million.
Same-store sales, sales at locations open at least a year, were up 3.9 per cent in Canada and 6.3 per cent in the United States.
Excluding one-time charges in the quarter, the company said it earned 51 cents per share for the quarter. The average analyst estimate had been for a profit of 54 cents per share, according to Thomson Reuters.
In 2009, Tim Hortons and its franchisees absorbed some of affect of rising commodity prices to hold the line on prices amid the recession.
“But that was a very rare situation,” chief financial officer Cynthia Devine said.
“Times have changed. There are significant commodity price increases that we need to pass on.”
The company also increased its quarterly payout to shareholders on Wednesday to 17 cents per share, up from 13 cents, and announced a plan to buy back up to 10 per cent of its stock in 2011 — about $445 million worth — a move that began last year when it received the cash from the Maidstone sale.
In its outlook, the company said its earnings per share are projected to come in between $2.30 and $2.40 in 2011, with same-store sales growth between three and five per cent in both Canada and the U.S. and capital spending between $180 million and $200 million, the company said.
Investment firm UBS said although the Tim Hortons earnings missed the average analyst expectation, the dividend increase was larger than expected.
“Key highlights of the quarter include very strong same-store sales in the U.S., supporting our view Tim Hortons is gaining traction in this market,” the firm wrote in a note to clients.
For all of 2010, the chain earned $624 million or $3.58 per share, compared to $296.4 million, $1.64 per share, in 2009. Annual revenue increased four per cent to $2.54 billion.
Based in Oakville, Ont., Tim Hortons (TSX:THI) is Canada’s biggest restaurant chain and the fourth-biggest in North America with more than 3,700 restaurants.
The company has recently been expanding its market, with a master license agreement with Dubai-based Apparel Group to open up to 120 restaurants in the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman over the next five years.
Late last year, Tim Hortons said it would close 54 locations in New England, a money-losing market for the company, where it faces strong competition from locally-headquartered Dunkin Donuts.
Since opening its first U.S. store in Buffalo, N.Y., in 1985, Tim Hortons has expanded to over 600 stores in a dozen states — including Michigan, Ohio, Kentucky and West Virginia — and plans to open another 300 locations over the next three years.
Shares in the company were up 75 cents at $42.20 on the Toronto Stock Exchange on Wednesday.