Starbucks shares regained positive ground at midday despite settling a dispute with Mondelez International, the former owner of Kraft Foods, by agreeing to pay $2.75 billion for terminating the companies' coffee-selling contract.
Senatore rates Starbucks and Mondelez at outperform. The analyst rates Kraft Foods at market perform. Starbucks is restating its fourth-quarter and full-year results to reflect the settlement, it said in a Securities and Exchange Commission filing on Wednesday. Starbucks reported last month that revenue fell short of analysts' expectations for the coffee-focused retailer's September-ended fourth quarter. The company reported net income of $481.1 million, or 63 cents a share, up 34% from the year-earlier fourth quarter. Consensus expectations were calling for the company to earn 60 cents a share. Revenue rose 12.8% to $3.79 billion from the year-earlier quarter, slightly below expectations of $3.81 billion. "We are pleased the arbitration has ended; however, we strongly disagree with the arbitrator's conclusion and that Kraft is entitled to $2.23 billion in damages plus $527 million in prejudgment interest and attorneys' fees," Starbucks CEO Troy Alstead said in a statement on Tuesday. "We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft," Alstead said. "While we disagree Kraft is entitled to damages, the amount awarded reflects the value of our at-home coffee business and the continued global growth opportunity that lies ahead for Starbucks. We have adequate liquidity both in the form of cash on hand and available borrowing capacity to fund the payment, which will be booked as a charge to our fiscal 2013 operating expenses." As a result of the award, the Seattle-based company reported a fourth-quarter operating loss of $2.1 billion and operating margin of -55.7%, respectively. The quarter's net loss and loss per share were $1.2 billion and $1.64 a share, respectively. Full year fiscal 2013 operating loss and operating margin were $325.4 million and -2.2%, respectively, and full year fiscal 2013 net earnings and earnings per share were $8.3 million and 1 cent, respectively, Starbucks said in the filing. "Taking our packaged coffee business back from Kraft was the right decision for Starbucks, our brand and our shareholders," Alstead continued. "The results over the past two and a half years clearly demonstrate that Starbucks at-home coffee portfolio is significantly healthier than it was before we assumed direct control from Kraft in 2011. We have the leading market share of premium packaged coffee, and our total at-home coffee portfolio has grown significantly under the direct model." Written by Laurie Kulikowski in New York.