Is Tim Hortons (THI) Poised to Beat Earnings Estimates?

Based in Oakville, Canada, Tim Hortons Inc. THI is set to report second quarter 2014 results on Aug 6, 2014. Last quarter, it posted a negative earnings surprise of 1.64%. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

This provider of coffee and espresso-based hot and cold specialty drinks has been consistently posting positive comps since the second quarter of 2013. Moreover, during the first quarter of 2014, comps were also up year over year both in the U.S and Canada driven by favorable product mix and pricing.

Tim Hortons' menu innovations hold the key to its growth. The company has regularly innovated its menu to cater to changing consumer preferences. Meanwhile, Tim Hortons is also focusing on technology-driven initiatives in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. The company provides mobile payment option to its guests. In addition, other technological mediums like a digital programming network called TimsTV is in the pipeline. Moreover, new restaurant openings and renovations are other sales initiatives taken by the company. These would continue to contribute to revenues in the upcoming quarter.

However, we would like to remind investors that these efforts would also result in higher expenses. In fact, the company expects operating expenses to grow through 2014. One other major concern is the increase in coffee prices due to a drought in Brazil. This would further increase costs, thereby hurting profitability in the upcoming quarter.

Earnings Whispers?

Our proven model does not conclusively show that Tim Hortons is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 81 cents. Hence, the difference is 0.00%.

Zacks Rank #2 (Buy): Tim Hortons' Zacks Rank #2 when combined with a 0.00% ESP makes surprise prediction difficult. Note that the Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Stocks to Consider

Other stocks in the broader consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Papa John's International Inc. PZZA with Earnings ESP of +4.88% and a Zacks Rank #2

Zoe's Kitchen, Inc. ZOES with Earnings ESP of +50.00% and a Zacks Rank #2

Jack in the Box Inc. JACK with Earnings ESP of +3.51% and a Zacks Rank #3 (Hold)
 

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