There's a reason America runs on Dunkin' Brands (Nasdaq: DNKN) -- because it makes a pretty good cup of coffee based on its fourth-quarter results.

Dunkin' Brands, the name behind the retail chains Dunkin' Donuts and Baskin-Robbins, reported revenue of $168.5 million, a 13% increase over the year-ago period, and a profit of $0.30, easily surpassing Wall Street's expectations of a $0.28 profit on sales of $160 million.

The driving force behind Dunkin's growth remains its coffee business, or more importantly, the partnerships that Dunkin' has fostered. Its partnership with Green Mountain Coffee Roasters (Nasdaq: GMCR) has allowed it to bring the K-Cup single-serve craze into its Dunkin' Donuts stores, driving same-store sales higher by 7.4%. One key point that needs to be made is that K-Cups aren't cannibalizing Dunkin's own coffee brands, but rather enhancing it by giving consumers other options.

International sales continued to soar as well with revenue jumping 10.9% at established Baskin-Robbins stores and 2.9% at its Dunkin' Donuts locations.

Dunkin' is often slammed for being No. 2 in the coffee sector with comparisons often made that it can't compete with Starbucks (Nasdaq: SBUX) or that it'll eventually succumb to McDonald's (NYSE: MCD) considerably larger cash balance and more diverse menu. I think both are a bit premature.

There's plenty of room in the coffee sector for all three to co-exist with each hitting a different niche of customer. Just because a company is No. 2 in a sector, doesn't mean it can't turn a healthy profit. During the fourth quarter, Dunkin' Brands' operating margin actually increased by 620 basis points to 43.3% over the year-ago period. Another bullish point, Dunkin' Donuts' same-store sales increased sequentially in each quarter in fiscal 2011:





Dunkin' Donuts Same-Store Sales 2.8% 3.8% 6.0% 7.4%

Source: PR Newswire per Dunkin' Brands press release.

It begs mentioning that Dunkin' has managed this growth in the face of Starbucks introducing lighter roasts to appeal to more fickle palates and McDonald's continuing to offer everyday low prices on its coffee that can easily undercut Dunkin's pricing. Thankfully for shareholders, Dunkin's brand name is well-known and its aggressive growth strategy is driving sales higher.

Wall Street may not have been too keen on Dunkin's EPS guidance of $1.19-$1.23 for fiscal 2012 (which was in line with the consensus figure of $1.21), but it did nothing to change my opinion that this stock is anything but a buy. I initially made a CAPScall of outperform on Dunkin' Brands in November and, as of now, that call is up more than 5%. I see no reason not to maintain that position throughout 2012 as Dunkin expands its K-Cup partnership and makes aggressive moves to expand in the international markets.

Now, is anyone suddenly craving doughnut holes? Or is that just me?

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.