We have maintained a Neutral rating on
Starbucks Corporation
(
SBUX
) following appraisal of fiscal second quarter 2012 results.
Starbucks' second quarter 2012 earnings of 40 cents per share
beat the Zacks Consensus Estimate by a penny. Quarterly earnings
increased 18% year over year driven by a solid top line, improved
efficiencies and cost control.
Revenues increased 15.0%, driven by strong global same-store
sales and substantial top-line growth in the Channel Development
(CPG) segment. The company also raised its fiscal 2012 outlook due
to improving business trends and strong first half results.
Starbucks is one of the most recognized coffee brands in the
world. Other than fresh, rich-brewed coffees, Starbucks' offerings
also include many complementary food items and a selection of
premium teas, sold mainly through the company's retail stores.
Popular company brands include Starbucks coffee, Tazo Tea,
Seattle's Best Coffee and Starbucks VIA Ready Brew.
Starbucks' CPG business, which reflects everything outside the
Starbucks stores like packaged coffee, foodservice operations,
K-Cups, Starbucks VIA Ready Brew and Tazo tea, is growing rapidly.
It is a largely diverse (in terms of revenue mix), high margin,
high return on capital business which has given a fillip to both
top- and bottom-line growth in the past few quarters. The
company expects this business, which deepens Starbucks' presence in
the at-home coffee and away-from-home coffee segments, to continue
to grow over the long term.
Starbucks focuses on brand innovation and new products to create
differentiated value proposition for its customers. Among the
recently launched products Starbucks VIA Ready Brew and Starbucks
K-Cups helped it to capture 21% share of the premium single-cup
market against a zero presence in this segment just 2-3 years
back.
The upcoming launch of the Verismo system and the expanded
partnership with
Green Mountain Coffee Roasters
(
GMCR
) (to use Starbucks-branded Vue packs on the latter's Keurig
Brewers) are expected to help Starbucks capture further share of
this potential $8 billion market in the coffee industry.
Other successful recent product launches include Starbucks
Refreshers, made from real fruit juice and green coffee extract,
Blonde Roast coffee and Evolution Fresh juices. Continued
innovation and new product offerings would drive both top- and
bottom-line growth for the company, going forward.
Moreover, Starbucks' U.S. operations have witnessed a
substantial turnaround since the last couple of years. The segment
regularly posts an operating margin of around 20% which is expected
to improve further through new store openings, remodeling of
existing stores, new product launches like Blonde Roast, Verismo,
K-Cup, VIA single serve and Evolution Fresh juices over time.
Further, Starbucks' business in China is rapidly growing and the
region is expected to become the company's second-largest market by
2014.
Despite the positives, poor sales in Europe due to depressed
macroeconomic conditions and rising cost of commodities, especially
coffee, keep us on the sidelines.
GREEN MTN COFFE (GMCR): Free Stock Analysis
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STARBUCKS CORP (SBUX): Free Stock Analysis
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