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Processed and Packaged Goods Starbucks Corporation Module 4 & 5: Parsimonious Forecasting & DCF Model Angie Zhao. Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International. STARBUCKS. Return on Enterprise Operations. All in millions except ratios.

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slide1

Processed and Packaged Goods

Starbucks Corporation

Module 4 & 5: Parsimonious Forecasting & DCF Model

Angie Zhao

Starbucks •Green Mountain Coffee •J.M. Smucker • Mondelez International

return on enterprise operations
Return on Enterprise Operations

All in millions except ratios

return on enterprise operations1
Return on Enterprise Operations
  • RNEA of Starbucks was significantly above that of competitors
  • Reasons to be discussed

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breaking apart rnea time series
Breaking Apart RNEA - Time Series
  • Fluctuations in RNEA are largely caused by fluctuations in EPAT resulting from many one-time items
  • E.g. 2013:
    • Litigation charges of $2.78b (Kraft Foods)
    • Income tax benefit of $1.07b
breaking apart rnea time series1
Breaking Apart RNEA - Time Series
  • Fluctuations in RNEA are largely caused by fluctuations in EPAT resulting from many one-time items
  • E.g. 2013:
    • Litigation charges of $2.78b (Kraft Foods)
    • Income tax benefit of $1.07b
    • EATO – stable and increasing
breaking apart rnea cross sectional
Breaking Apart RNEA – Cross Sectional
  • EPM is the lowest in the group
    • Many one-time items are included in calculations
breaking apart rnea cross sectional1
Breaking Apart RNEA – Cross Sectional
  • EPM is the lowest in the group
    • Many one-time items are included in calculations
  • EATO of Starbucks is significantly above competitors
    • larger sales (2x to 3x), while 9% revenue came from licensed stores
sales growth assumption
Sales Growth Assumption

Sales growth – 2014 Q1 conference call

5% - U.S. company-operated comparable stores

15% - U.S. licensed stores

8% - the Americas, 11% - EMEA, 25% - CAP

7% - Channel Development

  • Company-operated stores
  • Licensed stores
  • CPG, foodservice & other
  • Overall sales growth forecast?
sales growth assumption1
Sales Growth Assumption
  • Sales growth of competitors also fluctuated a lot
  • No reason to sway from the average of Starbucks’ sales growth
  • Assume a 11% sales growth
epat from sales
EPAT from Sales
  • Excluded one-time items
    • Litigation Charges, related tax benefit, and OCI items
  • Less volatile EPAT and EPM (compare)
epm assumption
EPM Assumption

Assume

EPM: 10%

eato assumption
EATO Assumption

EATO quite stable

Assume a 5.7 EATO

industry analysis concerns issues
Industry Analysis, Concerns & Issues
  • GMCR, MDLZ, SJM may not be sufficient to gather information on SBUX
    • Coffee is not the primary product of MDLZ and SJM
    • This leaves GMCR comparable to SBUX in terms of business and products, but not size (1/4x sales of SBUX)
  • Peer companies
    • Capture only the coffee production segment (“CPG, Foodservice, and other”) of SBUX
    • Omit store sales (both company-operated and licensed)
  • Macro effects on industry
    • Rising coffee bean prices
    • Political factors
discounted cash flow model1
Discounted Cash Flow Model

Use 2018

as base year

discounted cash flow model4
Discounted Cash Flow Model

Share price (2/4/2014): $70.65

Market Cap: $53.4b

BV of Equity: $5.11b

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