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Starbucks to Receive $7.15B From Nestle in Coffee Alliance
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Starbucks Corporation (SBUX - Free Report) and Swiss-based food giant Nestle SA are joining forces to revitalize their coffee domains. Starbucks and Nestle announced a global marketing deal that gives the latter "perpetual rights" to market Starbucks’ products globally outside of its coffee shops. This is aimed at expanding the global reach of Starbucks brands in the consumer packaged goods (“CPG’) and foodservice categories.
The deal requires Nestle to pay Starbucks $7.15 billion (€5.97 billion) upfront in cash for the rights to sell Starbucks coffee products in retail and food-service channels. Meanwhile, as part of the deal, around 500 Starbucks staff will join Nestle. The agreement is subject to customary regulatory approval and expected to close by the end of 2018.
Tie-Up Benefits
The agreement with Nestle, which already owns the Nescafe and Nespresso brands, will boost the global presence of the Starbucks, creating new growth opportunities in the established North American markets while unlocking expansion in international markets as well. Notably, Nestle has lately been spreading its footprint in the United States. In 2017, it added niche brands like Blue Bottle Coffee and Chameleon Cold-Brew to its portfolio.
"This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle," said Kevin Johnson, president and chief executive officer of Starbucks.
Starbucks has plans to use the proceeds to mainly accelerate share buybacks. The coffee chain giant now expects to return approximately $20 billion in cash to its shareholders in the form of share buybacks and dividends through fiscal year 2020.
Moreover, the Seattle-based coffee giant expects the transaction to add to earnings per share (EPS) by the end of fiscal year 2021 or sooner. However, it does not expect any change to its long-term financial targets.
Notably, the deal is in sync with Starbucks’ strategy to boost its top line with a focus toward operations where growth prospects and returns are the greatest.
Meanwhile, the deal is Nestle’s first alliance with a major contender in coffee. Nestlé said that it expects the business to contribute positively to its EPS and organic growth targets from 2019. Notably, its ongoing share buyback program would remain unchanged.
Overall, the latest tie-up enhances Nestlé’s retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks solid presence in K-cup pods in the United States.
A Look At Starbucks Share Price Performance
Starbucks’ shares have lost 0.3% in the past six months, while its industry has gained 2%. Recently, the company reported second-quarter fiscal 2018 results, wherein its earnings met the Zacks Consensus Estimate while revenues surpassed the same. Notably, Starbucks reported in-line earnings in three of the last four quarters.
Nonetheless, adjusted EPS of 53 cents in the fiscal second quarter grew 17.8% year over year. Total sales of $6.03 billion also increased 13.9% from the year-ago level. Notably, the acquisition of the East China business as well as other portfolio reshuffling activities lent a 3% net benefit to Starbucks’ top line. These activities include the closure of the Teavana mall store in the quarter, the Tazo divestiture in December, and the conversion of certain international retail operations from company-owned to licensed models.
The company is leaving no stone unturned to boost its comparable store sales or comps growth in the United States that has been soft for the last few quarters. In the recently reported quarter, the Americas segment (accounting for 70% of total revenues) registered 2% comps growth, same as the preceding quarter, mirroring concerns that its increased promotions have somehow failed to attract customers in huge numbers.
Meanwhile, earnings estimates have remained unchanged for the current fiscal year over the past 30 days. That said, Starbucks’ portfolio reshuffling strategies along with major marketing programs are expected to lend much support to its top and bottom lines going forward.
Arcos has a 3-5 years expected EPS growth rate of 19.4%.
Dine Brands is expected to witness 22.9% earnings growth in 2018.
Brinker International’s 2018 earnings are expected to grow 10%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Starbucks to Receive $7.15B From Nestle in Coffee Alliance
Starbucks Corporation (SBUX - Free Report) and Swiss-based food giant Nestle SA are joining forces to revitalize their coffee domains. Starbucks and Nestle announced a global marketing deal that gives the latter "perpetual rights" to market Starbucks’ products globally outside of its coffee shops. This is aimed at expanding the global reach of Starbucks brands in the consumer packaged goods (“CPG’) and foodservice categories.
The deal requires Nestle to pay Starbucks $7.15 billion (€5.97 billion) upfront in cash for the rights to sell Starbucks coffee products in retail and food-service channels. Meanwhile, as part of the deal, around 500 Starbucks staff will join Nestle. The agreement is subject to customary regulatory approval and expected to close by the end of 2018.
Tie-Up Benefits
The agreement with Nestle, which already owns the Nescafe and Nespresso brands, will boost the global presence of the Starbucks, creating new growth opportunities in the established North American markets while unlocking expansion in international markets as well. Notably, Nestle has lately been spreading its footprint in the United States. In 2017, it added niche brands like Blue Bottle Coffee and Chameleon Cold-Brew to its portfolio.
"This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle," said Kevin Johnson, president and chief executive officer of Starbucks.
Starbucks has plans to use the proceeds to mainly accelerate share buybacks. The coffee chain giant now expects to return approximately $20 billion in cash to its shareholders in the form of share buybacks and dividends through fiscal year 2020.
Moreover, the Seattle-based coffee giant expects the transaction to add to earnings per share (EPS) by the end of fiscal year 2021 or sooner. However, it does not expect any change to its long-term financial targets.
Notably, the deal is in sync with Starbucks’ strategy to boost its top line with a focus toward operations where growth prospects and returns are the greatest.
Meanwhile, the deal is Nestle’s first alliance with a major contender in coffee. Nestlé said that it expects the business to contribute positively to its EPS and organic growth targets from 2019. Notably, its ongoing share buyback program would remain unchanged.
Overall, the latest tie-up enhances Nestlé’s retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks solid presence in K-cup pods in the United States.
A Look At Starbucks Share Price Performance
Starbucks’ shares have lost 0.3% in the past six months, while its industry has gained 2%. Recently, the company reported second-quarter fiscal 2018 results, wherein its earnings met the Zacks Consensus Estimate while revenues surpassed the same. Notably, Starbucks reported in-line earnings in three of the last four quarters.
Nonetheless, adjusted EPS of 53 cents in the fiscal second quarter grew 17.8% year over year. Total sales of $6.03 billion also increased 13.9% from the year-ago level. Notably, the acquisition of the East China business as well as other portfolio reshuffling activities lent a 3% net benefit to Starbucks’ top line. These activities include the closure of the Teavana mall store in the quarter, the Tazo divestiture in December, and the conversion of certain international retail operations from company-owned to licensed models.
The company is leaving no stone unturned to boost its comparable store sales or comps growth in the United States that has been soft for the last few quarters. In the recently reported quarter, the Americas segment (accounting for 70% of total revenues) registered 2% comps growth, same as the preceding quarter, mirroring concerns that its increased promotions have somehow failed to attract customers in huge numbers.
Meanwhile, earnings estimates have remained unchanged for the current fiscal year over the past 30 days. That said, Starbucks’ portfolio reshuffling strategies along with major marketing programs are expected to lend much support to its top and bottom lines going forward.
Zacks Rank & Key Picks
Starbucks carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Arcos Dorados Holdings Inc. (ARCO - Free Report) sporting a Zacks Rank #1 (Strong Buy), and Dine Brands Global, Inc. (DIN - Free Report) and Brinker International, Inc. (EAT - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arcos has a 3-5 years expected EPS growth rate of 19.4%.
Dine Brands is expected to witness 22.9% earnings growth in 2018.
Brinker International’s 2018 earnings are expected to grow 10%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>