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Starbucks cools off

June 12, 2012: 3:39 PM ET

Starbucks is cooling off ... for now.

The Seattle-based coffee chain trimmed its earnings forecast by about 2 cents a share Tuesday, but there's no need to panic. It's not like Starbucks is going to report a loss.

Last year's high coffee prices, Europe's nagging debt problems and the company's baking plans will cut into Starbucks' bottom line this year, said chief financial officer Troy Alstead, at the annual stock conference of brokerage firm William Blair.

"We have suffered from extreme commodity cost pressure," said Alstead. Coffee prices surged about 35% during the first five months of 2011, when prices were largely being locked in for the current fiscal year. And that's led to "$200 million or more of incremental commodity cost headwinds year over year," said Alstead.

"Despite that pressure, we've been able to continually grow earnings," Alstead said.

Starbucks (SBUX) expects earnings per share of $1.80-$1.82 for fiscal year 2012. That's down from its prior forecast in April of $1.81 to $1.84 a share. April was also when Starbucks' stock hit an all-time high above $60.

Last week, Starbucks announced plans to buy San Francisco-based Bay Bread and its La Boulange bakery brand for $100 million, as it moves to expand beyond coffee.

Related: Starbucks: 'We are bakers too'

Starbucks has also teamed up with Green Mountain Coffee Roasters (GMCR) to market Starbucks-branded K-Cups. And Starbucks has its own plans to start selling its own single-serve machine, dubbed the Verismo, later this year.

Green Mountain's stock has taken a hit as competitors nip at its heels.

But rival Dunkin' Donuts owner Dunkin' Brands (DNKN) hit a 52-week high on Monday.

Looking ahead, Starbucks expects fiscal 2013 to be much brighter. With coffee prices down some 30% from January, that's certainly going to help ease some of the pricing pressure.

"It is clear that we have a tailwind coming in fiscal 2013 since we've locked in most of our coffee prices for 2013," said Alstead.

But you can never tell what will hit the coffee producing areas of the world. Bad weather and political strife can quickly cut into crops in Brazil, Colombia, Vietnam and Indonesia, which are among the top 10 coffee producers.

And as other coffee makers vie to knock Starbucks off its perch, the battle could take a toll on Starbucks' profits.

  • Starbucks: 'We are bakers too'

    Starbucks is getting into the bread business.

    The Seattle-based coffee chain announced plans Monday to buy San Francisco-based Bay Bread and its La Boulange bakery brand for $100 million.

    "This is an investment in our core business," said Howard Schultz, Starbucks chief executive, in a conference call with financial analysts. "After more than 40 years, we will be able to say that we are bakers too."

    Schultz said one-third of Starbucks transactions include MORE

    - Jun 4, 2012 5:21 PM ET
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Stupid Stock Move of the Day
#StupidStock Move of the Day! $SBUX down 2%? Earnings great. Concerns about future overdone. Why underestimate Schultz? Make mine a Venti!
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