Starbucks: Coffee Perks or Putters?

SEATTLE (TheStreet) -- Starbucks has been plagued by soaring coffee prices and famously raised prices by 17% in the recent quarter. Market watchers will pay close attention to the coffeehouse giant's earnings report, scheduled to be released after the closing bell Thursday, to see if consumers swallowed a more expensive java or curbed their daily fix.

Analysts are calling for Starbucks to have earned $258.8 million, or 34 cents per share, on revenue of $2.85 billion in its fiscal third quarter. In the year-earlier period , Starbucks earned $207.9 million, or an adjusted 29 cents per share, on revenue of $2.61 billion. If Starbucks meets expectations it would be a 24.5% profit increase year over year.

In May Starbucks announced a 17% price hike in bagged coffee, underscoring the pressure coffee retailers are facing as Arabica coffee bean futures continue to trade near decades-long highs.

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Starbucks' price hike echoed J.M. Smucker's (SJM) move a day earlier when it raised coffee prices for the fourth time this year in response to soaring Arabica costs. Smucker, which makes Folgers and Millstone coffee brands and also licenses the Dunkin' Donuts (DNKN) brand, raised prices on its coffee products by 11%, its largest price increase yet. Smucker has raised prices by 34% over the past year as it struggled to maintain margins amid soaring coffee costs.

Coffee futures hit a three-decade high of $3.0615 per pound on May 3 but have come down somewhat from that price in recent trading sessions. The commodity most recently traded at $2.4120 per pound.

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Green Mountain Coffee Roasters (GMCR) said earlier this year that its margins had been growing despite soaring coffee bean costs. Even so, the Vermont coffee maker said in early May that its margin improvement was a result of successfully passing on higher coffee costs to buyers, and that it would likely raise prices again. Peet's Coffee & Tea (PEET) lowered its profit guidance by 10 cents per share as coffee prices skyrocketed.

In December, Starbucks CEO Howard Schultz called the 50% spike in coffee futures "tragic," blaming financial speculators for the run-up in prices.

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John Culver, president of Starbucks Coffee International, said "we think that these prices are not based on facts given there is no supply problem," according to reports in Swiss newspaper Tages-Anzeiger published in early May. "Speculators are at work here."

Starbucks shares rose 3.7% to $40.41 in early-afternoon trading ahead of its earnings release, getting a boost from Green Mountain Coffee Roasters' (GMCR) better-than-expected third quarter profit and revenue figures.

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-- Written by Miriam Marcus Reimer in New York.



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