On Sep 6, we maintained a Neutral recommendation on
), despite solid fiscal-third quarter 2013 results as we await a
rebound in the European and CPG businesses.
Why the Reiteration?
The coffee giant's fiscal-third quarter 2013 earnings of 55
cents per share beat the Zacks Consensus Estimate of 53 cents by
3.8%. Earnings grew 28% year over year and also beat management's
expectations. Robust increase in global traffic, increasing
popularity of its Starbucks loyalty cards, efficiency
improvements and cost controls and lower coffee costs boosted
Revenues increased 13% year over year and also beat the Zacks
Consensus Estimate. Strong comps in the U.S. and Asia-Pacific and
significant improvement in Europe drove the top line in the
Moreover, the company raised earnings expectations for the
fourth quarter and fiscal year 2013 and also issued an impressive
guidance for fiscal 2014.
Overall, we are encouraged by Starbucks' strong global retail
footprint, successful food/beverage innovations, rapid growth in
international markets and solid turnaround in the U.S. We believe
that the company has compelling growth drivers like La Boulange,
Verismo, Teavana, K-Cups, loyalty program and food innovations to
sustain the earnings momentum, going forward.
Following the solid third-quarter results and the upbeat
outlook for the year, estimates were largely revised upwards. The
Zacks Consensus Estimate for 2013 increased 1.4% and that for
2014 went up 1.5% over the last 60 days.
However, Starbucks is facing challenges in its European
business due to the region's poor economic conditions, high
unemployment and fragile consumer confidence. Though the
transformational initiatives are gaining traction, we would
prefer to remain on the sidelines until we witness some
significant improvement. Further, revenues from the company's CPG
business slowed down in fiscal 2012 due to stiff competition in
the packaged coffee market resulting in lowered pricing.
CPG revenues are expected to return to double-digit growth in
fiscal 2014 driven by volume growth from recent price reduction,
innovation, international expansion and an accelerated agreement
Green Mountain Coffee Roaster, Inc.
). Until we see substantial improvement in Europe and the CPG
business rebounds, we prefer to be on the sidelines.
Other Stocks to Consider
Starbucks carries a Zacks Rank #3 (Hold). Other restaurateurs
Burger King Worldwide, Inc.
Cracker Barrel Old Country Store, Inc.
) are currently doing well and have a bright outlook. All these
stocks carry a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
STARBUCKS CORP (SBUX): Free Stock Analysis
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