Why Tim Hortons, Inc. Just Served Up Piping-Hot Results

Tim Hortons stock, breakfast sandwich

Tim Hortons posted strong results on the heels of new menu items like the Turkey Breakfast sandwich. Source: Tim Hortons.

As if Tim Hortons  (NYSE: THI  ) breakfast wasn't already a great way to start the day, investors in the Canadian coffee giant enjoyed a 7% jump early Wednesday following its delicious second-quarter results.

Tim Hortons' quarterly revenue jumped 9.3% year over year to CA$874.3 million, helped by both the openings of 29 new restaurants in Canada and same-store sales growth in Canada and the U.S. of 2.6% and 5.9%, respectively. In addition, while Tim Horton's net income remained relatively flat over the same period at CA$123.8 million, that still translated to 13.6% growth in earnings per share to CA$0.92 -- thanks to a combination of strong operating performance, a recent recapitalization, and its recently expanded share repurchase program. Analysts, on average, were only modeling earnings of CA$0.86 per share on sales of CA$838.27 million.

Better yet, Tim Hortons now expects earnings per share for all of fiscal 2014 to be at the high end, or slightly above, its previous targeted range of CA$3.17 to CA$3.27.

Here's what's behind the beat
But that also raises the question: Digging deeper, what's really driving Tim Hortons' performance? 

In Canada, the chain saw sales increase in both its breakfast and lunch dayparts, as diners embraced new menu offerings like its Turkey Sausage hot breakfast sandwich, "enhanced" Hash Brown, and a new Crispy Chicken sandwich.

Tim Hortons stock, Iced Capp drink

Tim Hortons Iced Capp beverages drove sales in the U.S. Source: Tim Hortons.

U.S. consumers were a little more on the thirsty side, as Tim Hortons pointed to the successful introduction of new products such as Frozen Hot Chocolate, and "ongoing innovation" around its Iced Capp platform. And similar to its Canadian operations, Tim Hortons also saw continued growth in the overall U.S. breakfast daypart. As a result, the company now expects U.S. same-store sales growth to be at the high end, or slightly above, its targeted range of 2% to 4%.

On longer-term growth
Finally, while Tim Hortons only opened one new restaurant in the U.S. last quarter as it focused primarily on Canada, investors can look forward to it picking up the pace from here. Subsequent to the end of Q2, Tim Hortons signed a development agreement with a new partner to add 25 new locations in Richmond County, New York, and Middlesex County, New Jersey.

Tim Hortons has now completed six such development agreements in the U.S., representing 135 new restaurants. There is one caveat, however: These new restaurants will be opened over a period of 10 years, so shareholders should keep in mind Tim Hortons' U.S. ambitions are most certainly of the longer-term variety. For reference, as of June 29, 2014, Tim Hortons had 4,546 total restaurants, including 3,630 in Canada, 866 in the U.S., and 50 in the Gulf Cooperation Council.

My Foolish takeaway
Tim Hortons' beat and raise wasn't all that massive, but there's no denying its results are solid by any measure. In the end, we're still talking about a solidly profitable company taking advantage of its strong brand to implement methodical, profitable expansion. Over the long term, that's why I think Tim Hortons should have little trouble continuing to create value for patient shareholders.


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