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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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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


Any questions
Any questions?


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