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Starbucks Looks Poised to Keep Brewing Strong Earnings

By Dan Caplinger - Apr 23, 2013 at 9:45PM

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The coffee king announces its latest earnings on Thursday.

On Thursday, Starbucks (SBUX 2.98%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Starbucks has recovered sharply from a crisis of confidence during the financial crisis, as customers returned to their coffee habit after the recession ended. Yet the company continues to face strong competitive pressures from several directions. Let's take an early look at what's been happening with Starbucks over the past quarter and what we're likely to see in its quarterly report.

Stats on Starbucks

 

 

Analyst EPS Estimate

$0.48

Change From Year-Ago EPS

20%

Revenue Estimate

$3.58 billion

Change From Year-Ago Revenue

12.1%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Starbucks make investors happy this quarter?
Analysts have kept their views on Starbucks unchanged over recent months, with no adjustments to earnings estimates either for the just-ended quarter or for its 2013 fiscal year. The stock hasn't stayed still, though, rising nearly 10% since mid-January.

Starbucks has done a good job of fending off challenges to its core coffee business in recent years. Fast-food giant McDonald's (MCD 1.52%) has had great success with its McCafe line of premium beverages, but a recent rise in customer service complaints had Fool contributor Rick Munarriz speculating that dealing with longer preparation times for premium drinks might be behind the surge in unfriendly employees and longer drive-thru waiting times. By contrast, the customer experience at Starbucks is one of its primary attractions, and customers don't hesitate to stand in long lines waiting to make their purchases.

Starbucks has also branched out beyond coffee. After acquiring companies with expertise in juice and tea, Starbucks most recently started testing handcrafted sparkling beverages in its hometown Seattle stores. By seeking to attract non-coffee drinkers, the company is aiming at finding growth where it can find it.

One key area for improvement, though, is for Starbucks to address a long-standing problem: food. Panera Bread (PNRA), which is quickly shaping up to be a rival for Starbucks, has focused on high-quality food offerings to deliver its cafe experience. So far, Starbucks hasn't fully taken advantage of its recent purchase of the La Boulange bakery line, but if it can finally expand into combining food and beverage more extensively, it could provide a new source of growth both from existing customers and with new locations.

In looking at Starbucks' report, investors need to focus not on whether the company is growing but rather on how fast it can grow. With shares priced for near-perfection, Starbucks needs its new growth ideas to bear fruit in order to sustain its valuation.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$76.71 (2.98%) $2.22
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$251.87 (1.52%) $3.78
Panera Bread Company Stock Quote
Panera Bread Company
PNRA

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