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Starbucks Tweaks Prices

Starbucks is trying to manage around rising commodity prices with targeted price increases.



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(SBUX) - Get Free Report

is trying to manage around rising commodity prices.

After Wednesday's closing bell, the Seattle-based coffee seller outlined its response to the recent jump in the price of green arabica coffee, which it said was close to a 13-year high, saying it would implement targeted price increases "on certain beverages in certain markets." It also noted volatility in the cost of other key ingredients, such as sugar, dairy products and cocoa, as a factor in its decision.

The company left open the chance that it could make further adjustments to its pricing, saying it would continue to monitor green coffee prices closely and that it "could not rule out the possibility" of lifting the price of its packaged coffee products in the next few months.

But, in a show of confidence that these moves would be enough to offset the higher ingredient costs, Starbucks reaffirmed its outlook for earnings of $1.36 to $1.41 a share in its fiscal 2011, which ends in September of next year.

Howard Schultz, Starbucks's president and CEO, said it had become "untenable" for the company to absorb the expense of the surge in green coffee prices any longer in a statement.

The company's plan calls for it to "maintain or lower the price of some of its most popular beverages, including certain espresso beverages; and, in most markets, its popular $1.50 tall brewed coffee; and to raise prices of labor-intensive and larger-sized beverages."

The current outlook of analysts polled by

Thomson Reuters

is for Starbucks to post earnings of $1.43 a share in fiscal 2011.

Fourth-quarter and full-year results for fiscal 2010 are slated for Nov. 11 with Wall Street anticipating profits per share of 32 cents and $1.23 in the respective periods.

The stock closed Wednesday's session at $25.93, down 23 cents. The shares are up 13.4% year-to-date, but have pulled back 9% since hitting a 52-week high of $28.50 on June 21. Of the 19 analysts covering Starbucks, eight rate it at hold, five at buy and six at strong buy. The current median 12-month price target is $29.50.


Written by Michael Baron in New York.

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