Here’s How Dunkin’ Shares Heat Up the Coffee Industry

It has been a good year for coffee stocks. Shares of Dunkin’ Brands Group Inc. (NASDAQ:DNKN) and Starbucks Corp. (NASDAQ:SBUX) have both perked up 30 percent year-to-date. A decline in coffee bean prices have certainly helped to fuel coffee stocks, but the next leg higher will come from earnings and guidance.

Dunkin’ Brands woke up coffee investors early Thursday morning. Before the opening bell, the company reported better-than-expected first-quarter earnings. Dunkin’ Brands earned $26 million, compared to a loss of $1.7 million a year earlier. Excluding items, it earned 25 cents per share, beating estimates of 23 cents per share. The impressive results were attributed to strong same-store sales in the United States, which increased 7.2 percent at Dunkin’ Donuts and 9.4 percent at the company’s Baskin-Robbins stores. Meanwhile, system-wide sales growth increased 10.9 percent in the first-quarter.

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Chief Executive Officer, Nigel Travis, said in a press release, “We’re pleased with the performance of the business in the first-quarter during which we had continued strong revenue and operating income growth. Our core Dunkin’ Donuts U.S. segment is thriving with 7.2 percent comp store sales growth and accelerating net development compared to the first quarter of 2011.” He goes on to explain, “We also recently announced several exciting strategic developments including an agreement with The Coca-Cola Co. (NYSE:KO) to serve its products in Dunkin’ Donuts and Baskin-Robbins restaurants in the U.S.”

In addition to reporting strong financial results, Dunkin’ Brands also raised its 2012 guidance. The company increased its full-year adjusted earnings forecast to $1.21-$1.24 per share, compared to $1.19-$1.23 per share. Dunkin’ Brands also said it expects U.S. same-store sales at Dunkin’ Donuts to increase 4-5 percent, compared to its previous estimate of 3.5-4 percent. Sales at U.S. Baskin-Robbins stores are expected to rise 2-4 percent, compared to a previous estimate of no change to an increase of 2 percent. According to Bloomberg, U.S. Dunkin’ Donuts stores account for about 75 percent of the company’s revenue and 85 percent of its profit.

Shares of Dunkin’ Brands jumped 2 percent higher in early trading after the earnings release. The strong guidance bodes well for companies such as Starbucks, which reports earnings after today’s closing bell. Other coffee names such as Green Mountain (NASDAQ:GMCR), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET) all report earnings next week. Going forward, investors should keep an eye on commodity costs and how well companies can manage costs and fuel growth. As our premium subscribers know, rising commodity prices will become a bigger issue in the foreseeable future.

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