May 1, 2008 / 8:40 PM / 10 years ago

Tim Hortons stock drops after results disappoint

OTTAWA (Reuters) - Tim Hortons THI.TO THI.N stock dropped as much as 5.5 percent 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.

A customer buys coffee and Timbits at a Tim Hortons coffee outlet at the Pengrowth Saddledome in Calgary March 24, 2006. REUTERS/J.P. Moczulski

Hurt by winter snowstorms and the timing of holidays, the quick-serve restaurant company posted first-quarter profit of C$61.8 million ($61.4 million), or 33 Canadian cents a share, trailing the average estimate of analysts 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.

Recently appointed Chief Executive Don Schroeder announced a management overhaul on Wednesday, with some senior executives taking on new responsibilities and others resigning. The changes will save C$1.5 million annually.

“As a result of employees leaving the organization under various retirement and other arrangements, the company will incur a restructuring charge of approximately C$3.8 million in the second quarter,” he said on a conference call with analysts and investors on Thursday.

“Let me be clear, we have continued confidence in our ability to meet our operating income growth target of 10 percent, but this target excludes this one-time charge.”

Investors sold off the stock in heavy trade on Thursday. The shares fell 2.3 percent to end at C$33.69 on the Toronto Stock Exchange and dropped 4 percent in New York to close at $32.98.

So far this year, the stock has lost about 8 percent of its value.

Executives said they were not rattled by a range of challenges from weaker consumer spending and inflation to higher commodity costs.

The company said it factored in expectations for a tough first quarter into its full-year forecast and is relatively protected from commodity price hikes. It has forward purchases of such key ingredients as coffee, sugar, wheat and oils covered for the balance of the year.

RBC Capital Markets analyst Irene Nattel said higher operating costs also crimped first-quarter profit. She 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.

($1=$1.02 Canadian)

Editing by Peter Galloway

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