Starbucks ($SBUX) Q3 Results Confirms That the Future is Still Bright

On Thursday the 26th, Starbucks (SBUX) posted results for the third quarter and the numbers were in line with analysts’ expectations. Both sales and revenue fell in line with estimates and words from the CEO gave comfort that Starbucks growth days are far from over.

Starbucks (SBUX) third quarter was satisfying in many ways. At first, it was important for Starbucks to show that the terrible second quarter where growth was declining was a one-time accident. Naturally, investors back then got very worried since management decreased global revenue targets from 3% to 1 % as well as identifying slower growth in China and a somewhat saturated market in USA.

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The coffee giant posted revenue of $6.31 billion which was a bit higher than the mean consensus from analysts at $6.25 billion. The revenue was up 11% from last year driven by consolidation from the East China business along with a 1% increase in comp sales globally.

By excluding the net impact of streamlining activities, which is the steps a business takes to improve efficiency, revenue actually increased 7% YTY.

Earnings per share

The earnings per share (EPS) landed on $0.62 which was 2% better than the mean consensus from analysts at $0.61. For the next 12 months, the total adjusted earnings per share is expected to hit $2.55 as compared to the EPS for the past 12 months of $2.28.

Starbucks high dividend is still safe

Starbucks is now yielding 2.76% which is 90% higher than the 5 – year average of 1.45%. The earnings payout ratio, which shows how well a company can cover their dividend payment has now moved from 50% to 57%. While the payout ratio has increased, Starbucks should have no problem paying their dividend to shareholders.

A total view on Q3

While this quarter didn’t cause the share price to jump up, one could easily see that management is taking the situation seriously. Especially Starbucks CEO Kevin Johnson who emphasize his focus on providing a more predictable growth and shareholder value and tried to calm doubtful investors.

“While we fell short of the expectations we had entering the quarter, we made measurable progress against two commitments we’ve made to our shareholders: to deliver predictable, sustainable growth at scale and to create meaningful increases in shareholder value long into the future” – Kevin Johnson.

He followed by acknowledging a somewhat disappointing first half for fiscal 2018, while yet saying that the future looks bright.

“While acknowledging a disappointing Q3, I want to be clear that we have 100% confidence in our growth strategy and the sustainability of the leadership position we have built in the market”

Kevin Johnson ended by saying that he has complete confident in the management to manage the next phase of Starbucks growth strategy in China.

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Disclaimer: The author owns shares in Starbucks

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