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Financials : Thrifts & Mortgage Finance | Small Cap Value
Company profile

Federal Home Loan Mortgage Corporation is a government-sponsored enterprise (GSE). The Company is engaged in purchasing residential mortgage loans originated by lenders. The Company also invests in mortgage loans and mortgage-related securities. The Company operates through two segments: Single-Family and Multifamily. The Single-Family segment includes purchase, securitization, and guarantee of single-family loans, its investments in single-family loans and mortgage-related securities, the management of Single-Family mortgage credit risk and market risk, and any results of its treasury function that are not allocated to each segment. The Multifamily segment includes purchase, securitization, and guarantee of multifamily loans, its investments in multifamily loans and mortgage-related securities, and the management of multifamily mortgage credit risk and market risk.

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Starbucks sales are expected to hit a record, thanks to inflation

2:05 pm ET November 2, 2022 (MarketWatch)

By Bill Peters

Starbucks earnings preview: Amid rising costs and labor tensions, Starbucks' higher-income consumers are 'more insulated from macro pressure,' one analyst says

Starbucks Corp. is expected to report record quarterly sales, boosted by higher prices, though earnings are expected to decline amid labor tensions, higher costs for ingredients and COVID-19 lockdowns in China, where the coffee chain has tried to expand.

Starbucks (SBUX) is scheduled to report fiscal fourth-quarter earnings on Thursday, and Wall Street will be looking for signs of enduring demand in an increasingly make-your-own-coffee economy. Rampant inflation has raised concerns about whether customers have room to spend on cold brews, pumpkin-spice lattes and oat-milk macchiatos.

During its Investor Day last month, however, Starbucks executives cast the company as one that had learned from the "hubris" that characterized its culture during the Great Recession, and said that 2008 was not the same as 2022.

"So far, we have been immune," interim Chief Executive Howard Schultz said at the event.

Starbucks executives, during the company's last earnings call in August, said they'd raised prices roughly 5% over the past 12 months. A recent MagnifyMoney.com study found that Starbucks slaps an 18.3% "tax" on its popular Pumpkin Spice Latte, making the price of one a dollar higher than a standard 16-ounce latte.

Opinion: Why inflation will likely stay sky-high regardless of which party wins the midterms

But B. of A. analysts said Starbucks' customers could handle the higher prices. In a note on Wednesday, they said Starbucks was among its top stock picks for the holiday season, arguing that "its higher income customer base is more insulated from macro pressure." And they are not alone.

"The U.S. business is humming, and the China risk is increasingly understood," Wedbush analyst Nick Setyan wrote in a research note on Friday. "Meanwhile, the international business, ex. China, continues to perform well. This bodes well not only for FQ4 results, but also for FY23 guidance."

But analysts have had reservations about the company's goals further out. Some suggested Starbucks' longer-term financial goals outlined then -- including annual same-store sales growth of 7% to 9% in its coming two fiscal years -- might be a little too optimistic.

Nearer-term, the company has hiked pay amid a budding unionization drive. But the union representing those workers has said some efforts to bargain with the coffee chain fell through within minutes, after company representatives walked out of meetings on objections with some members potentially participating remotely. Starbucks, in turn, has alleged that the broadcasting or recording of those meetings amounted to "failing to bargain in good faith," and said both sides agreed to meet in person.

For more: Starbucks urged to work with unions in letter from members of Congress

What to expect

Earnings: Wall Street analysts expect Starbucks to report adjusted earnings of 72 cents a share, compared with $1 a share in the same quarter a year ago, according to FactSet. Estimize, which gathers estimates from analysts, hedge-fund managers, executives and others, reports a consensus estimate for a loss of 75 cents a share.

Revenue: Analysts expect sales of $8.32 billion, which would be a quarterly record up from $8.15 billion in the quarter last year, according to FactSet. Same-store sales are estimated to be up 4.2%. Estimize reports a consensus sales estimate $8.37 billion.

Stock price: Starbucks stock has slid 25.8% this year. By comparison, the S&P 500 index is down 19.1%.

What analysts are saying

Executives, during the Investor Day, said cold beverages like Nitro Cold Brews and ice shakes were "commanding a premium price." And analysts expect those items to help sales during Starbucks' fourth quarter.

"We expect domestic comps to be driven by modest traffic growth alongside pricing, higher food attachment, and strong sales of higher-ticket cold beverages," William Blair analysts said in a research note this month.

But they said they expected operating margin in Starbucks' North America segment to shrink, due to "inflationary pressure and investments in labor/operational initiatives partly offset by pricing (including additional increases taken over the summer to offset further wage increases) and sales leverage."

Oh my gourd! People pay 14.1% more on average for pumpkin-spice products

Starbucks in May pulled its outlook for the rest of the fiscal year, citing rising costs and saying the direction of China's COVID-19 policies were increasingly difficult to gauge. During the call on Thursday, there could be more questions about whether inflation has cooled demand -- even for customers who haven't felt the pinch yet.

B. of A. analysts, in a separate note earlier this month, said credit- and debit-card data showed that restaurant demand overall "softened consistently" from March through July. But it then rebounded in August and held through September.

"Industry comps have generally proven more resilient than might be expected, leaving investors intently focused on any signs that macro weakness is translating into significantly slower comps, or broader weakening of demand (e,g higher income groups that have been more insulated until now)," they said.

-Bill Peters


(END) Dow Jones Newswires

November 02, 2022 14:05 ET (18:05 GMT)

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