Earnings Preview: Starbucks

Coffee company, Starbucks Corporation (SBUX - Analyst Report) is all set to unveil its fourth quarter and fiscal 2012 results after market closes on November 1, 2012. The Zacks Consensus Estimate for the fourth quarter is pegged at 45 cents (estimated year-over-year growth of 21.03%) on revenues of $3.39 billion (year-over-year increase of 11.9%). The fourth quarter estimate is at the higher end of the company guidance range of 44 cents-45 cents.

For fiscal 2012, the Zacks Consensus Estimate is $1.78 (estimated year-over-year increase of 16.9%) on revenues of $13.32 billion (year-over-year increase of 13.8%).

Third Quarter Recap

Starbucks reported earnings of 43 cents per share for fiscal third quarter 2012, which missed both the Zacks Consensus Estimate of 45 cents as well as the company expectations. Starbucks was expecting to post earnings within a range of 44 cents - 45 cents in the quarter. The lower-than-expected results were due to soft consumer traffic trends in the U.S. in June and a weakening global consumer environment. Starbucks has also been struggling in Europe for some time. Quarterly earnings however increased 19% year over year due to top-line and margin growth.

Total sales for the third quarter increased 13% year over year to $3.3 billion. The sales growth was driven by strong global same store sales and substantial top-line growth in the Channel Development (also referred to as CPG business) segment. The quarterly revenues were however almost in line with the Zacks Consensus Estimate of $3.31 billion. Following the third quarter miss, Starbucks cut its outlook for the fourth quarter due to the economic downturn.

Agreement of Estimate Revisions

Over the past 30 days, while 2 of 23 estimates for Starbucks’s fourth quarter earnings have been revised downward, one moved in the opposite direction. For fiscal 2012, one out of 26 estimates moved upward; as well as one estimate moved downward over the past 30 days. For fiscal 2013, while 2 of 26 estimates moved up, 3 moved down. There have been no estimate revisions over the past 7 days for either the fourth quarter or for the fiscal 2012.

Most of the estimates were revised after the announcement of guidance cut during the third quarter conference call in July this year. Starbucks announced the launch of Verismo and opening of its first store in India in the past quarter. However, these news did not have any material impact on the estimates.

Magnitude of Estimate Revisions

The consensus estimates for the fourth quarter of 2012 as well as for fiscal 2012 have remained static at 45 cents and $1.78 over the last 30 days. The fiscal 2013 consensus estimate stands at $2.13, unchanged over the last 30 days and at the higher end of the guidance range of $2.04 to $2.14.

Surprise History

Starbucks has surpassed earnings estimates in three of the past four quarters, recording a maximum positive surprise of 2.78% in the fourth quarter of fiscal 2011. On average, the earnings surprise is a positive 0.74%.

Our Recommendation

We currently have a Neutral recommendation on Starbucks. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).