Starbucks Corp, the world’s largest coffee chain, expects rising coffee prices to hit profits more than it previously thought but stressed that it would not raise prices to cover the extra expense.
That news sent its shares down almost 3 percent, even as the company reported profits and US sales that handily topped Wall Street’s targets.
Rising prices for ingredients ranging from coffee and milk to beef and bread are squeezing restaurant operators.
Photo: Bloomberg
Earlier this week Starbucks rival McDonald’s Corp said it would hike prices “where it makes sense” to offset some, but not all, of the food cost increases.
Seattle-based Starbucks on Wednesday narrowed its earnings forecast to US$1.44 to US$1.47 a share for this fiscal year, compared with the average analyst expectation of US$1.49 a share.
The company expects commodity costs to cut earnings by about US$0.20 this fiscal year, compared with its previous forecast of US$0.08 to US$0.10 a share in November.
“I think they’re being conservative,” Oppenheimer analyst Matt DiFrisco said, because of the unknowns facing the company.
While a strengthening US economy could boost sales and give the company room to put through another price increase, he said, Starbucks does not yet know how much it will have to pay to oust Kraft Foods Inc as its supermarket packaged coffee distributor.
“They’re going to have to pay Kraft some money this year,” RBC Capital Markets analyst Larry Miller said.
Starbucks wants to end its 12-year-old partnership with Kraft on March 1, and some analysts estimate that the fee for early termination could top US$1 billion.
Starbucks removed one uncertainty from investors’ minds by locking in coffee prices for this year. Coffee represents 15 percent to 20 percent of its cost of sales.
The benchmark “C” arabica coffee futures contract trading on ICE Futures US remains around levels last seen 13-and-a-half years ago, after surging nearly 80 percent in a rally that began in June last year.
Late last year the company raised drink prices in the US and China due to surging prices for coffee and other commodities.
Starbucks’ profit for the fiscal first quarter ending on Jan. 2 jumped almost 44 percent from the year-ago period to US$346.6 million, or US$0.45 a share. That easily topped analysts’ average call for a profit of US$0.39 per share for the latest quarter, according to Thomson Reuters I/B/E/S.
Cost control and efficiency efforts helped operating margins improve 800 basis points to 17.3 percent in the US and increase 620 basis points to 13.8 percent internationally.
Sales at Starbucks cafes open at least 13 months were up a better-than-expected 8 percent in the US and up 5 percent internationally for the holiday quarter, which traditionally is Starbucks’ biggest for revenue.
Zhang Yazhou was sitting in the passenger seat of her Tesla Model 3 when she said she heard her father’s panicked voice: The brakes do not work. Approaching a red light, her father swerved around two cars before plowing into a sport utility vehicle and a sedan, and crashing into a large concrete barrier. Stunned, Zhang gazed at the deflating airbag in front of her. She could never have imagined what was to come: Tesla Inc sued her for defamation for complaining publicly about the vehicles brakes — and won. A Chinese court ordered Zhang to pay more than US$23,000 in
‘LEGACY CHIPS’: Chinese companies have dramatically increased mature chip production capacity, but the West’s drive for secure supply chains offers a lifeline for Taiwan When Powerchip Technology Corp (力晶科技) entered a deal with the eastern Chinese city of Hefei in 2015 to set up a new chip foundry, it hoped the move would help provide better access to the promising Chinese market. However, nine years later, that Chinese foundry, Nexchip Semiconductor Corp (合晶集成), has become one of its biggest rivals in the legacy chip space, leveraging steep discounts after Beijing’s localization call forced Powerchip to give up the once-lucrative business making integrated circuits for Chinese flat panels. Nexchip is among Chinese foundries quickly winning market share in the crucial US$56.3 billion industry of so-called legacy
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday held its first board of directors meeting in the US, at which it did not unveil any new US investments despite mounting tariff threats from US President Donald Trump. Trump has threatened to impose 100 percent tariffs on Taiwan-made chips, prompting market speculation that TSMC might consider boosting its chip capacity in the US or ramping up production of advanced chips such as those using a 2-nanometer technology process at its Arizona fabs ahead of schedule. Speculation also swirled that the chipmaker might consider building its own advanced packaging capacity in the US as part
‘NO DISRUPTION’: A US trade association said that it was ready to work with the US administration to streamline the program’s requirements and achieve shared goals The White House is seeking to renegotiate US CHIPS and Science Act awards and has signaled delays to some upcoming semiconductor disbursements, two sources familiar with the matter told reporters. The people, along with a third source, said that the new US administration is reviewing the projects awarded under the 2022 law, meant to boost US domestic semiconductor output with US$39 billion in subsidies. Washington plans to renegotiate some of the deals after assessing and changing current requirements, the sources said. The extent of the possible changes and how they would affect agreements already finalized was not immediately clear. It was not known