Canadian coffee and doughnut chain Tim Hortons (NYSE:THI) recently served shareholders a nice helping of 15.5% revenue growth, clearly helped by 9.3% and 8.3% increases in same-store sales for Canada and the United States, respectively. However, when it came to the bottom line, the company's abbreviated press release suspiciously excluded an adjusted earnings figure for last year's fourth quarter.
While it's pretty to say earnings rose from $0.10 Canadian per share to $0.35 for the latest quarter, last year's figure included some hefty one-time accounting charges related to the initial public offering and spinoff from Wendy's International (NYSE:WEN). This brings me to inquire, "Where's the beef?"
You don't have to look far -- just down in the note below the table in the press release -- but it still would've been nice to see these adjusted figures in the table. The tab for "goodwill and asset impairment" came to $33.5 million against net income. So here's a more realistic, yet still impressive, picture of Tim Hortons' performance (in millions of Canadian dollars):
|
4Q 2006 |
4Q 2005 |
Adjusted Change |
Reported Change | |
|---|---|---|---|---|
|
Revenue |
$466.5 |
$403.9 |
15.5% |
15.5% |
|
Net Income |
$67.9 |
$49.9 |
36.1% |
313.0% |
|
EPS |
$0.35 |
$0.31 |
12.9% |
250.0% |
Earnings per share were still affected by the initial public offering last March, which increased the number of shares outstanding by 20.8%. In other words, before the IPO, the pie was cut into 10 pieces and after the IPO the pie is cut into 12 pieces.
Of course, the "pie" also grew (by 36.1% to be exact), but this does illustrate why it's important for shareholders to watch for share dilution from events like stock options granted to executives and secondary public offerings. Granted, the IPO is a perfectly legitimate excuse, and so far there has been no significant increase in shares outstanding.
Operating cash flow remains strong, providing "Timmy's" (as one Motley Fool CAPS contributor nicknames the company) with all the cash it needs to fuel new restaurant growth. Same-store sales continue to look good, and this is a company with a history of strong customer loyalty. All that gives Tim Hortons a bright future south of the border.
The stock has also been on a roll, up about 25% since August, to a valuation of 22 times 2006 earnings of $1.40 per share now. While it may not hurt to add a few shares, I'd make it a side order for now. Wall Street has a way of letting great stocks cool down once in a while, so I would definitely be interested in a main course should this one become available for 15 to 17 times earnings.
For related Foolishness:
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Fool contributor Jason Ramage holds no financial interest in the companies mentioned here, but writing this Take sure gave him a cravin' for some biscuits 'n' gravy. His CAPS rating is 9,461 out of 22,722.
