Soaring coffee prices could mean a more expensive cup at Tim Hortons
A Tim Hortons coffee cup is seen in New York on Wednesday, July 22, 2009. (AP / Seth Wenig)
TORONTO -- Are you ready to pay more for your morning cup of coffee?
Executives at Tim Hortons Inc. (TSX:THI) are hinting that a price hike could be on the way in 2015, as they respond to the soaring value of next year's crop of beans.
Chief financial officer Cynthia Devine told analysts that bean prices are a factor that Tim Hortons will "need to look at" with its franchisees.
While she stopped short of saying higher coffee prices at the restaurant chain are a certainty, she said Tim Hortons would need to determine "what actions may be necessary" at its stores.
Prices for coffee beans have nearly doubled this year, partly on concerns that lack of rain in Brazil could dry up next year's crop. In October, the price of Arabica beans jumped to a two-and-a-half year high.
Large coffee chains like Tim Hortons order coffee beans through futures contracts and lock in the prices for years at a time with their suppliers, which gives them flexibility and protects them from market fluctuations.
Already, some of the company's competitors have boosted how much they charge for a cup, including coffee chain Starbucks and U.S. manufacturer J.M. Smucker, which makes the Folgers brand.
On Wednesday, Tim Hortons reported that it earned $98.1 million in its latest quarter, down from $113.9 million a year ago, as it was hit by costs related to Burger King's deal to buy the company.
The coffee and doughnut chain said the profit amounted to 74 cents per share in its latest quarter, down from 75 cents per share a year ago.
Total revenue amounted to $909.2 million, up from $825.4 million.
Excluding $27.3 million in costs related to the deal with Burger King Worldwide Inc. and 3G Capital as well as $1 million in corporate reorganization costs, Tim Hortons said it earned an adjusted operating profit of $196.1 million for the quarter, up from $169.8 million a year ago.
Adjusted earnings per share totalled 95 cents, seven cents higher than analyst expected, according to a survey by Thomson Reuters.
Tim Hortons reported same-store sales were up 3.5 per cent in Canada as customers spent more, offsetting a slight decline in same-store transactions. The company said sales were helped by its new chicken sandwich, specialty doughnuts and new dark roast coffee.
In the U.S., same-store sales increased by 6.8 per cent in the quarter, helped by increased spending by customers and to a lesser extent an increase in same-store transactions.
Burger King agreed in August to buy Tim Hortons in a friendly deal worth more than US$11 billion in stock and cash.
The deal still requires shareholder and regulator approvals.