Specialty coffee retailer Starbucks (
SBUX) will report its first quarter earnings number on January 26 after the market closes. The results will come on the heels of the company raising its prices on select products in selected regions of the U.S. to compensate the increasing costs of ingredients.
The fourth quarter results were unfavorably impacted by 2.9 percentage points in its operating margin due to higher commodity prices, particularly coffee. But the recent hike in price has come into effect only January and therefore, it would not have any impact on first quarter results.
Expectations
Wall Street analysts are expecting Starbucks to deliver 49 cents a share on revenues of $3.29 billion for the first quarter. This represents earnings growth of 9 percent on the strength of 11.50 percent revenue upside.
Importantly, earnings have been revised down to 49 cents a share from 51 cents a share 90 days ago, but slightly increased from 48 cents a share 60 days back.
Analyst Take
During the current month, 10 analysts have recommended Starbucks as Strong Buy, eight analysts have Buy rating and nine analysts gave Hold rating on the stock. There is no analyst to recommend Sell on the sock. However, there is one analyst who rates the stock as Underperform.
On January 25, Oppenheimer upgraded Starbucks shares to Outperform from Perform.
Fourth Quarter Results
Starbucks reported net income of $358.5 million, up 28.5 percent from $278.9 million and earnings increased 27 percent to 47 cents a share from 37 cents a share in the year-ago quarter. Excluding gains, adjusted earnings for 2011 fourth quarter was 37 cents a share.
Total revenues grew 6.8 percent to $3.03 billion from $2.84 billion in the previous year quarter. Analysts had estimated earnings of 36 cents per share on revenues of $2.95 billion.
Operating margin slipped to 14.85 percent from 16.95 percent in the previous year quarter, but improved from 13.6 percent in the third quarter.
Earnings History
In the last four quarters, the company's earnings swept past analysts' estimations in three quarters and in the second quarter, its earnings met with estimations. The company earned 37 cents, 36 cents, 34 cents and 45 cents a share in the four quarters of the fiscal year ended September 2011.
On the top line side, the company generated revenues of $3.03 billion, $2.93 billion, $2.79 billion and $2.95 billion for the four quarter of fiscal 2011 respectively.
Versus Peers
For the trailing twelve month period, Starbucks gross margin of 57.7 percent is better than industry average of 24.2 percent and McDonald's (MCD) 39.58 percent. But the operating margin of 13.27 percent is weaker than McDonald's 30.49 percent, but higher than industry average of 3.41 percent.
Two days back, McDonald's reported that its net income increased to $1.38 billion from $1.24 billion for the fourth quarter and earnings rose to $1.24 a share from $1.16 a share in the year-ago quarter. Total revenues increased 10 percent to $6.82 billion from $6.21 billion in the previous year quarter.
iStock Punch
Everything seems to be in favor of the company except for operating margin, which needs to be improved. Though there was sequential improvement in operating margin in the fourth quarter, there is still room for improvement. The latest quarter results will likely to have the effects of rising commodity prices. One can take further position in the stock based on the results. But one thing is for sure, the stock is not on the Sell radar.
