TORONTO - Tim Hortons Inc. (TSX:THI) has finally found a new leader nearly two years after the abrupt exit of its former CEO, but it doesn't plan to make any sweeping changes in the short term, despite recent calls from an investor.
The company, which reported weaker earnings on Wednesday, said it won't spin off of its real estate holdings because it "would not create significant value" for the company.
Chief financial officer Cynthia Devine told analysts on a conference call the company has examined the possibility of a real estate trust.
"Our conclusion is that the establishment of a REIT structure would not create significant value for a number of reasons," she said.
"These reasons include the number of lease sites in our system and the fact that there is a portion of income we derive from real estate under our control which may not be considered qualifying income for REIT purposes."
Tim Hortons owns about 20 per cent of its locations in Canada, though most are leased. It also owns its corporate headquarters and distribution centres.
Last week, U.S. investment firm Highfields Capital urged the company to consider a REIT and well as boost its buyback of stock, which the company says it will continue to do in the last half of the year.
A spin off of real estate properties to a trust has been popular among some companies as a way of unlocking value.
Grocer Empire Co. Ltd. (TSX:EMP.A) spun off its real estate assets as Crombie Real Estate Trust (TSX:CRR.UN) in 2006 and Loblaw Companies Ltd. (TSX:L) recently announced plans to form a real estate trust.
Meanwhile, Tim Hortons is preparing for incoming leader Marc Caira, a longtime senior executive at Nestle, who will officially take over from interim CEO Paul House on July 2.
"While he has literally travelled the world in building the Nestle professional business, Marc also has extensive knowledge of the out-of-home beverage and food service industry in North America," House told analysts.
Caira, 59, was most recently global CEO of Nestle Professional and was also a member of the executive board of Nestle SA, the world's largest food and beverage company. House will become non-executive chairman, while Caira will stand for election as a director at the annual meeting of shareholders.
Tim Hortons reported Wednesday a profit of $86.2 million or 56 cents per share in the three months ended March 31 compared with $88.8 million, or 56 cents per share, a year ago when the company had more shares outstanding.
Revenue totalled $731.5 million, up 1.4 per cent from $721.3 million.
Adjusted earnings were $137.4 million, up 4.4 per cent from 131.6 million in the 2012 quarter.
The company, which has faced an onslaught of competition from the likes of coffee chains like Starbucks and fast food restaurants like McDonalds, said that overall traffic at its locations was flat.
"Probably everybody in the industry today is running a $1 beverage somewhere, somehow, some type," House said.
"That wasn't normal activity a couple years ago before we hit these current economic headwinds."
Sales at established stores fell short of expectations for the quarter, with a drop of 0.3 per cent in Canada and 0.5 per cent in the United States. House blamed the weakness partly on less than favourable weather conditions and the timing of holidays in the period.
House also provided a less than enthusiastic outlook for the industry.
"The market itself is not really that robust in terms of growth," he said.
"We're seeing that growth that we used to see three and four years ago in terms of the overall market just in the last little while hasn't been there."
Tim Hortons has more than 4,288 locations which include Canada and in the United States, as well as 27 in the Gulf Co-operation Council.
Shares of Tim Hortons closed down 2.6 per cent, or $1.51, to $57.13 on the Toronto Stock Exchange.