Tim Hortons better than expected third quarter profit

Canadian multinational coffee and doughnut chain Tim Hortons Inc. posted better-than-expected profit in the third quarter. The company said customers are increasingly choosing their more expensive menu items.

However, costs associated with the C$12.64 billion ($11.06 billion) takeover deal with American fast-food chain Burger King contributed to a net income decline of 14%.

Net income declined to C$98.1 million (74 cents per share) in the quarter, compared to C$113 million (75 cents per share) in Q3 2013.

In the third quarter, merger costs were C$27.3 million (21 cents per share). Excluding those costs, earnings climbed by slightly more than 25% to 95 cents per share.

Total global sales increased by 7.5% on a constant currency basis.

Burger King reported its fastest quarterly growth in 24 months in North American same-restaurant sales on Tuesday.

The two companies are heading towards the merger with strong and growing performances. The transaction, which will create the third biggest fast-food chain globally, will be completed either in December or January.

On December 9th, Tim Hortons stockholders will vote on whether to go ahead with the deal.

(Source: Tim Hortons Inc. Third Quarter Results)

Third quarter sales at Tim Hortons restaurants open for 13 months or more increased by 6.8% in the US compared to 3% in Q3 2013. In Canada, they grew by 3.5% and 1.7% respectively.

While the number of Canadian customers declined for the 10th successive month, each one on average has been spending more on lunch/breakfast items.

In the US, where customer number increased marginally, spending per person was also up.

The company, which is known internationally as Tim Hortons Cafe and Bake Shop, reported that its second coffee blend in its 50-year history – the new dark roast – was popular in both the US and Canada.

Tim Hortons has projects underway for 145 new restaurants across the United States over the next ten years.

The Oakville, Ontario-based company which claims to sell nearly 80% of all cups of coffee sold across Canada, said its share repurchase program helped improve earnings per share.

Marc Caira, president and CEO, said:

“We have strong momentum in our business, supported by early stage execution of our strategic plan.  We are pleased with our ongoing growth and evolution which we believe is positioning our brand for long-term success.”

“With our strategic transaction announced in August, we can build on our momentum and have the opportunity to participate in the creation of a global powerhouse in the quick service restaurant sector.  We expect Tim Hortons to significantly expand its reach as a strong, independent brand within the new company.”