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TORONTO - Upping the price on coffee and baked goods helped push earnings up 11.5 per cent at Tim Hortons Inc. in the second quarter, slightly above analyst estimates.

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Cindy Wilson/Telegraph-Journal

Tim Hortons net earnings rose to $75 million, or 41 cents a share, from $67.2 million (36 cents) in the year-earlier quarter.

"We were very pleased with both our top-line growth and earnings," chief executive Don Schroeder said on a conference call.

The positive results came despite economic uncertainty, high gasoline and food prices, and increasing labour costs, all of which have put pressure on the food-service industry.

Those negative macroeconomic factors are more pronounced in the United States, Schroeder said, adding the Canadian segment still accounts for 92 per cent of overall revenue.

"I don't think there's any question that with the continued pressure, customers who would visit seven, eight times a week might be (visiting less now), but we can only hope we are making up the shortfall as other (consumers) trade down to (Tim Hortons)" from more expensive rivals, he said.

Net earnings rose to $75 million, or 41 cents a share, from $67.2 million (36 cents) in the year-earlier quarter. Analysts polled by Thomson Financial predicted profit of 40 cents per share before one-time items. Revenue climbed by 9.8 per cent to $510.7 million while sales at stores open at least a year rose by 5.7 per cent in Canada and by 3.1 per cent in the U.S.

Tim Hortons reiterated a target of boosting operating income by 10 per cent in 2008 and predicted sales growth at existing stores of four to six per cent in Canada, and two to four per cent in the U.S.

The company said it will spend about $30 million on a new coffee-roasting and "green coffee" blending operation in southern Ontario, which will provide 75 per cent of the coffee for the chain, helping quality control, Schroeder said.

Tim Hortons raised prices by four per cent in Canada and two per cent in the U.S. to offset higher costs for coffee, flour and labour, analysts said. The chain opened 23 restaurants in Canada and eight in the United States.

Before Thursday, Tim Hortons shares had dropped 20 per cent this year after earnings misses in the past three quarters. The company bought back 1.5 million shares in the quarter to help boost the share price. On Thursday, its stock rose $1.24, or 4.2 per cent, to $30.98.

The company recorded $3.1 million in severance costs after a management shuffle aimed at saving $1.5 million annually. Tim Hortons expects to open as many as 140 stores in Canada and up to 110 in the United States this year, where it has 406 locations. It has 2,851 Canadian outlets.