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Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International

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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Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International

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  1. Processed and Packaged Goods Starbucks Corporation Module 4 & 5: Parsimonious Forecasting & DCF Model Angie Zhao Starbucks •Green Mountain Coffee •J.M. Smucker • Mondelez International

  2. STARBUCKS

  3. Return on Enterprise Operations All in millions except ratios

  4. Return on Enterprise Operations • RNEA of Starbucks was significantly above that of competitors • Reasons to be discussed ` `

  5. 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

  6. 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

  7. Breaking Apart RNEA – Cross Sectional • EPM is the lowest in the group • Many one-time items are included in calculations

  8. 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

  9. 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?

  10. 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

  11. EPAT from Sales • Excluded one-time items • Litigation Charges, related tax benefit, and OCI items • Less volatile EPAT and EPM (compare)

  12. EPM Assumption Assume EPM: 10%

  13. EATO Assumption EATO quite stable Assume a 5.7 EATO

  14. Parsimonious Assumptions

  15. Multi-year Forecasts

  16. Multi-year Forecasts

  17. Multi-year Forecasts

  18. 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

  19. Discounted Cash Flow Model

  20. Discounted Cash Flow Model Use 2018 as base year

  21. Discounted Cash Flow Model

  22. Discounted Cash Flow Model

  23. Discounted Cash Flow Model Share price (2/4/2014): $70.65 Market Cap: $53.4b BV of Equity: $5.11b

  24. Any questions?

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