OTTAWA (Reuters) - Tim Hortons THI.TO THI.N stock dropped 4 percent in early trade on Thursday as investors digested the weaker-than-expected results that were reported by the Canadian coffee and doughnut chain after the market close on Wednesday.
First-quarter profit rose 4 percent to C$61.8 million ($61.4 million), or 33 Canadian cents a share, trailing the average analyst estimate of 36 Canadian cents a share.
Sales rose 8.4 percent to C$460.3 million, below a market expectation of C$466.2 million, according to Reuters Estimates.
The company’s stock fell 4 percent, or C$1.44, to C$33.04 on the Toronto Stock Exchange, and 5 percent, or $1.83, to $32.51 in New York. So far this year, shares have lost nearly 11 percent in Toronto, where they are more heavily traded.
Blaming “unprecedented snowfalls” in key markets and the impact of holidays, the company said the results did not meet its targets.
“But we expected a challenging quarter and have continued confidence in our ability to meet our sales growth targets for the full year,” recently appointed Chief Executive Don Schroeder said in a statement.
RBC Capital Markets analyst Irene Nattel said higher operating costs also crimped profit, calling the shortfall “modestly negative” because management reaffirmed its operating income growth target of 10 percent.
“But will the Street believe management?,” she asked in a note. “Expect stock to sell down this morning.”
Nattel trimmed her 2008 earnings estimate to C$1.60 a share from C$1.62 and her 2009 estimate to C$1.88 from C$1.89.
“A calendar shift of Easter into the first quarter and new statutory holidays in Ontario and Manitoba negative impacted sales by up to 1 percent,” UBS analyst Vishal Shreedhar said in a note outlining “transient” factors for the shortfall.
Tim Hortons, Canada’s biggest quick-service restaurant, also announced management changes that will result in a C$3.8 million second-quarter charge and C$1.5 million in annual savings.
Editing by Peter Galloway