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Starbucks Gets a Jolt From Home-Brewed Coffee

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The company's sales of single-serve K-Cups are soaring. And its new Verismo machine is about to give it an even bigger slice of this growing market.

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The popularity of single-serve coffee machines continues to rise. According to market research firm Euromonitor International, these devices accounted for 20% of coffeemaker sales in 2011, up from just 4% in 2006.

The current leader in this segment, with about 75% of the market, is the Keurig machine from Green Mountain Coffee Roasters (NASDAQ:GMCR). The device uses Green Mountain's "K-Cups," or single-serving coffee pods. When you put the K-Cup in the Keurig, it punctures the foil on the top and brews a single cup, often in under a minute.

Despite the fact that K-Cups are more expensive than buying ground or whole coffee beans, sales of the devices continue to soar.

Sensing the trend's strong potential, Starbucks (NASDAQ:SBUX) signed an agreement with Green Mountain in March 2011 to supply its coffee in K-Cups. This deal has been a huge benefit to the company. And now it's taking direct aim at Green Mountain with its own single-serve coffee machine, the Verismo. More on that below.

Packaged Coffee Perked Up Starbucks' Latest Results

In Starbucks' fiscal 2012 fourth quarter, which ended September 30, 2012, sales at the company's Channel Development segment, which includes its packaged coffees, jumped 32% from a year ago, to $318.5 million. The company attributed most of the gain to rising sales of its Starbucks and Tazo brand K-Cups.

That helped increase Starbucks' overall net revenue by 11%, to a record $3.4 billion from $3.0 billion a year ago. Starbucks is also seeing strong sales at its coffee shops: global same-store sales rose 6%, including a 7% gain in the Americas and a 10% increase in the China/Asia-Pacific region. Same-store sales fell 1% in Europe, the Middle East and Africa.

Starbucks' net income rose 0.1%, to $359.3 million, or $0.46 a share. Without $0.10 a share of one-time gains in the year-earlier quarter, Starbucks' earnings per share would have jumped 24%. Operating margins rose to 15.4% from 14.8% a year earlier.

The latest figures beat the consensus forecast of $0.45 a share in earnings on revenue of $3.39 billion.

In light of the strong results, Starbucks raised its fiscal 2013 earnings forecast to $2.06 to $2.15 a share from its previous guidance of $2.04 to $2.14. Starbucks also increased its quarterly dividend by 24%, to $0.21 a share. That adds up to $0.84 a year, for a 1.64% yield.
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