Will Americas & CAP Segments Aid Starbucks (SBUX) Q3 Earnings?

Starbucks Corporation (NASDAQ:SBUX) is scheduled to report third-quarter fiscal 2019 results on Jul 25, after the closing bell. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 7.1%. The bottom line also outpaced the consensus mark in each of the trailing four quarters, the average being 7.7%.

Q3 Expectations

The Zacks Consensus Estimate for third-quarter earnings is pegged at 72 cents, indicating a 16.1% rise from the year-ago quarter reported figure. Over the past 7 days, the company’s earnings estimates have witnessed downward revisions of 1.4%. For quarterly revenues, the consensus mark is pinned at nearly $6,680 million, suggesting 5.9% growth from the prior-year quarter number.

Let’s delve deeper to find out how the company’s top and bottom line will shape up in third-quarter fiscal 2019.

Americas and China-Asia-Pacific to Boost Revenues

Starbucks, which has reported top-line growth in the first and second quarter of fiscal 2019, is anticipated to continue with the momentum in the third quarter as well. Quarterly results are likely to be driven by solid revenue growth at the company’s Americas and China-Asia-Pacific (CAP) segments. Also, new store additions, expansion in China and positive global comparable store sales are likely to aid the company’s performance.

For revenues at the Americas and CAP segments, the Zacks Consensus Estimate is likely to witness year-over-year growth of nearly 7% and 11%, respectively. Growth in China and the Asia-Pacific region is likely to be driven by rapid unit growth, rising brand awareness and increased usage of the digital/mobile/loyalty platforms. Earlier, in a bid to boost growth in China, the company had announced a historic partnership with Alibaba (NYSE:BABA) for providing seamless Starbucks Experience. Starbucks also began delivery services in Beijing and Shanghai via Alibaba's Ele.me platform.

These apart, the company is focusing on three key areas that include expansion of the company’s loyalty program, digitalization and new member acquisition. These efforts are likely to drive comps higher. Furthermore, Starbucks holds a leading position in digital, card, loyalty and mobile capabilities.

Channel Development & EMEA Likely to Disappoint

We believe dismal performances of Channel Development, and Europe, Middle East and Africa (EMEA) are likely to persist in third-quarter fiscal 2019. For sales form Channel Development and EMEA, the Zacks Consensus Estimate is likely to decline 8.6% and 14.9%, respectively. Channel Development segment is likely to be impacted by licensing of the company’s CPG as well as foodservice businesses to Nestlé, following the completion of the deal on Aug 26, 2018.

Starbucks Corporation Price and EPS Surprise

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Starbucks has an Earnings ESP of +1.08% and a Zacks Rank #2, a combination that increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combination

Here are a few other stocks from the Restaurant space that investors may consider as our model shows that they too have the right combination of elements to post an earnings beat in the upcoming releases:

Chipotle Mexican Grill, Inc. (NYSE:CMG) has a Zacks Rank #1 and an Earnings ESP of +1.10%. The company is scheduled to report quarterly numbers on Jul 23.

Del Frisco's Restaurant Group, Inc. (NASDAQ:DFRG) has an Earnings ESP of +100.00% and a Zacks Rank #2.

McDonald's Corporation (NYSE:MCD) has an Earnings ESP of +0.44% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Jul 26.

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