April 24 brought us our quarterly look into two of our favorite coffee shops, Starbucks (SBUX -0.35%) and Dunkin' Brands (DNKN). Starbucks reported second-quarter adjusted earnings per share that were in line with analyst estimates at $0.56; Dunkin' reported first-quarter adjusted earnings per share that slightly disappointed at $0.33 compared to estimates of $0.36.
Dissecting these 10-Q filings and reports we can find plenty of valuable information regarding the future growth and investment value in both of these companies.
First to Starbucks
Some items of note were Starbucks' sales growth of 9% versus Q2 2013 and operating income growth of 18%, which was helped by a wider operating margin this quarter and the repurchasing of 3.5 million shares. These were just a few of the forces driving adjusted earnings-per-share growth of 17% for Starbucks over the same quarter a year ago. While this growth is very strong, there is more to this story investors should be looking into.
It seems like nearly every corporation in the United States has big plans to focus on China and the rest of Asia for continued growth for the foreseeable future; Starbucks is no exception to this trend. CEO Howard Schultz has made it very clear that Asia is the company's biggest opportunity, and it's easy to see why. China and other Asian countries have massive populations who are traditionally tea drinkers rather than coffee drinkers.
This past quarter, Starbucks' China/Asia Pacific, or CAP, segment produced revenue of $265 million, or 6.8% of total revenue for the company. The segment's revenue also represented a 24% gain from the same quarter a year ago, which was driven by the opening of nearly 700 new stores in the region and comparable-store sales growth of 7%.
The company's CAP segment is a very small portion of its total business, but it is by far the fastest growing; Starbucks has the framework laid to transform this into a major segment of its business.
Now to Dunkin' Brands
Though Dunkin' Brands missed analysts' estimates, which the company attributed to severe weather in the geographic region where many Dunkin' Donuts stores are located in the United States, it did not have a terrible quarter. Quarterly revenue rose more than 6% from the same quarter a year ago, and adjusted earnings per share increased nearly 14%.
Dunkin' Brands reports four major segments: Dunkin' Donuts U.S., Dunkin' Donuts international, Baskin-Robbins U.S., and Baskin-Robbins international. This quarter each segment contributed 72.8%, 2.5%, 5.3%, and 17.5% to the company's total revenue.
These figures show us that like Starbucks, Dunkin' Brands derives only a small portion of its total revenues from international operations and has plenty of room to grow on that front. According to the company's 2013 annual report, it opened a net of 415 new restaurants internationally in 2013. Also Dunkin' speaks of focusing its new restaurants on countries with high gross domestic product, specifically naming Europe as a key market for its future.
2014 forecasts
Both companies reaffirmed their goals for fiscal-year 2014 in their quarterly releases. Starbucks is aiming for revenue growth of 10% or better, comparable- store sales growth in the mid-single digits, 1,500 new stores internationally, and earnings per share of between $2.62 and $2.68.
Dunkin' Brands, on the other hand, has the following goals: grow revenue by 6% to 8%, comparable-store sales growth in the low-single digits, open 685 to 800 new stores around the world, and earnings-per-share growth of around 20% to $1.79 to $1.83.
Bottom line
These two coffee companies have greatly grown their businesses in the last few years, enriching shareholders along the way. It looks as if both companies still have plenty of room for future growth, as the international marketplace is a huge opportunity for both.
Based on each company's estimates, Starbucks is currently trading around 26.5 times 2014 earnings, and Dunkin' Brands is trading around 25.2 times 2014 earnings. Both represent a pretty high premium to the market's price of 16.6 times forward earnings, however both companies -- as said earlier -- are focused and poised to grow tremendously for the foreseeable future.
