Starbucks Corporation (SBUX) recently announced that it will open a manufacturing unit with a capacity of 4,000 metric tons per year, in Augusta, Georgia, by early 2014. The plant will cost $172 million and is expected to create more than 140 manufacturing jobs.
The new plant will be Starbucks’ fifth manufacturing unit in the U.S. while the four other facilities are located in Washington, Pennsylvania, South Carolina and Nevada. These facilities provide jobs to more than 830 people.
The plant will produce the coffee base for Frappuccino blended beverages, Starbucks VIA Ready Brew, and other Starbucks ready-to-drink products. Presently these products are manufactured from outside the U.S. The company intends to increase its market share and the new facility will support the increasing demand for the company’s products.
Starbucks expects higher capital expenditures in fiscal 2012 than fiscal 2011, due to investments in store renovations and in manufacturing capacity. The company expects total capital expenditures for fiscal 2012 to be about $900 million. The investment in the new plant in Georgia has been a part of this total capital expenditure.
We are optimistic about the growing demand for Starbucks’ products and the company’s strategy to expand its manufacturing facilities. However, increase in commodity costs, especially coffee, might have a negative impact on its performance.
We have a Neutral recommendation on Starbucks Corporation. Starbucks carries a Zacks #3 Rank in the near term (Hold rating).
One of its strongest competitors, Jamba Inc. (JMBA), currently has a Zacks #2 Rank in the near term (Buy rating).
Based in Seattle, Starbucks Corporation is the leading retailer of specialty coffee worldwide. The company buys and roasts high-quality whole bean coffees, which are sold along with handcrafted coffee and tea beverages and a variety of fresh food items.
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