Alright, welcome back everyone. Today on the Joseph Carlson show, we have some breaking news to get into one of the larger companies in my portfolio, which is Starbucks. They just reported earnings, a few minutes ago and the headline is positive Starbucks. Beat their earnings and revenue estimates, despite lockdowns in China. This is a big caveat here. I think Starbucks is having some serious issues in China. So we're going to check that
out. I'll dive into the earnings report will go through it together. We'll look at what happened with Starbucks over the past three months. It's, I also want to give an update on the earning season. Overall, the headline from Goldman Sachs is that it has been better than fared. Earnings have not been quite as catastrophic as many people are warning about. So, I want to go through and give some data and highlight how earning season has gone so far.
And I want to compare that with my portfolio. I put together this little spreadsheet that highlights the earnings results of my companies, specifically, all of my companies whether or not they beat their revenue. Their earnings per share what they forecasted weather. No forecast, a strong, forecaster week forecast, and then I actually went through and added them together by the portfolio waiting and compared it against the S&P 500. So you get to see how the earnings of my portfolio.
The passive income account Compares with the rest of the market. So, we're back to earning season and we see this earning season continue as more and more companies report their earnings. There were three companies in my portfolio that so far have not reported earnings He's Starbucks Disney and Target and Starbucks just reported their earnings a
few minutes ago. Now, before we jump in to their most recent quarter, I just want to give a brief overview of my investment thesis in Starbucks. The reason that I committed 30,000 dollars of capital to this company, Starbucks is a company that has Brand value. They have customer loyalty, they have unique digital properties with an app that works as a bank, they have high Returns on invested capital and they have a long history of growing, the revenue, growing their earnings
and paying a growing dividend. The company so far has done really well until recently a year ago, things started to trade down for Starbucks. It went from a hundred and twenty six dollars a share all the way down to 71 dollars a share as investors sold out of this company for varying reasons, fears about unions inflation and a recession has caused investors become cautious about this company that's when I jumped in and started buying shares of this company.
So that's where we sit right now. Now, if we jump to just the headlines hair, I think the headline from CNBC paints a positive picture. Starbucks beat earnings and revenue estimates despite lockdowns in China. So even with lockdowns in China and we'll look at how much that affected their China business even despite that, they still beat their earnings and revenue that shows how strong Starbucks is of a brand CNBC reports that their earnings per share were 84 cents compared to 75 cents
expected. So they just Crush their EPS estimate and then even the revenue was eight point one. Five billion versus 8.1 billion. They had their revenue basically, in line a small beat their. The important thing is they beat their earnings per share. That was a vital thing for Starbucks to prove, but there's a lot more. We can dive into a lot more key metrics on this earnings report. Some investors might say, the only thing that matters is the EPs and the revenue, that's not
true. There's a whole business underneath that there's lots of key metrics. You have to pay attention to. So let's go ahead and dive into some other things going on with Starbucks. I have their actual earnings report, right here. Let's go ahead and go through some things. First of all, they say, Consolidated, net, revenues up 9% to a quarterly record of eight point two billion. So they actually have a record revenue for the company.
All time, they say comparable, sales rep, 3%, globally. Up nine percent in the US. And up double digits internationally. So they have strong comparable sales in the US and internationally X China and we'll dive into that. I assume the China data is really bad. They've had a lot of shutdowns
there. They say the earnings per share of Gap adjusted, 84 cents, driven by u.s. performance and Global demand outside of China. They keep excluding China out of these numbers because I'm assuming again, that the China
numbers are not good. Here's a really important one and I think it's good for Starbucks to include this right at the top because this is a huge part of the thesis of investing in Starbucks, their reward membership, this works as a sort of bank for Starbucks, you get members in their loyalty program. They upload points and real money to it, Starbucks can use that money to open up new stores. Without having to have all that money actually committed to them through cash flows.
So they say they have active Starbucks reward membership up 13% in the US and Q3 to twenty seven point four million members. Now, here's where we get to the important part where they talk about how the business is doing broken down by geography. They say that comparable, same-store sales, increase three percent, but that's globally all across the board. If you break this down in North America, the comparable same store, sales increased by 9%.
With an 8 percent increase in average ticket and a 1% increase in comparable transactions. So, North America is going very strong for Starbucks. They're not only increasing the amount that people buy per visit, but they also had a slight increase in the amount of visits. So, both metrics are moving in the right direction. More money per visit more visitors, but then we get to the troubling part here. International is not going as
well. The international comparable same-store sales decreased by 18 percent driven by a fierce. Eighteen percent decline in comparable transactions and a four percent decline in average ticket the China comparable, same store, sales, decreased by 44% driven, by a forty three percent Decline and comparable transactions, and a 1% decline in average ticket. Now, I don't know exactly what's going on with the Chinese consumer.
I don't know if this is because of protests, if they decided, they don't like American companies, they don't want to support Starbucks. I I know if it's because they're just in lockdown and they don't have as much money, but either way, the takeaway here, is the China business is not strong. It's moving in the wrong direction at a very rapid Pace.
If this was down 7%, even 15%, that wouldn't be as alarming, but same store transactions down, 43% for comparable, transactions is a massive decline. I'm not sure what that is attributed to. I'm not sure what they're going to say. I'll listen to the Things called because I'm sure that's going to be asked about. But right now, this is a huge red flag. Starbucks says, the future.
Growth of the business is in China, and they eventually want the business in China to be bigger than the u.s., when it can decline this much year-over-year that is a concerning thing. So I'd like to get more information on this massive decline in comparable transactions from China. But as of right now, that's the Highlight we have u.s. doing well. We have international shrinking a little bit and China just
falling off of a cliff, overall. The As consumers enough to prop up the company because that's their biggest market. Now, moving on, here's a couple other highlights. The company opened up 318, net new stores. And Q3 this is the news that I don't see highlighted that often we hear about all the companies, every single one of them unionizing. When it's really not that many stores. The total amount of stores that have unionized is 170. Just this most recent quarter,
they opened up 318, news stores. So Starbucks is Being in new store, count faster than stores are being unionized. That's how quickly this company opens up new stores. And the amazing thing is with this business model, they pay for these new stores and around a year and a half. The return on investment is incredibly quick. They earn a high rate of return on every new store. They say ending in this period with 30 4948 stores globally, 51% of the company operated and 49% licensed.
So 34 1948 stores as of this last quarter, another highlight is we got another piece of news, we don't like to see, but this is something expected with any food company. That works with inflation Commodities. The operating margins decreased by four hundred basis points. Meaning, they went from 19.9%, the 15.9%, so the operating margins are being decreased over time.
Primarily driven by inflationary pressures investments in labor, including enhanced door partner, As well as sales D leverage related, to covid-19 restrictions in China, partially offset by pricing in North America and leveraged across markets outside of China. So between paying their employees more and between food prices increasing. That's where you get your margin contraction.
The CFO of the company says that we delivered a record-breaking Revenue performance during the quarter from continued strength, and our customer demand globally balance with our ability to execute Investments, despite macroeconomic and operational, headwinds our commitment. To deliver shareholder value has not wavered, and we are making the right decisions and Investments for the future Starbucks.
So far, neither the CFO or the CEO has commented regarding the huge drop-off in China, same-store sales. So I'd like to see that commentary, but I think I'm going to have to wait for the earnings call to see what they have to say. Now, if we look at some of the metrics here, we can look at how individual parts of the company, either grew or shrunk and the US most things look good comparable. Same-store sales is up 9% transaction. We're up, 1% change in ticket,
was up 8%, the store? Count went to 17,000 revenues also. Increased operating income was a little bit higher, but the margins did go down a little bit from 24 percent to 22 percent overall, a good performance. If this was only a US company and I think the u.s. is really what's holding up Starbucks right now. International had the same store sales, go down, 18 percent, change in transactions, go down fifteen percent, change in ticket, go down 4 percent, The store count did increase.
So we have a store count increase that's basically the only positive thing and then the most concerning is the operating margins went from 19 percent. Last year, that 8.5%, the operating margins in the international business, has been crushed, cut in half from 1/4 to the next. This looks incredibly ugly. If this is a standalone business, this would be a horrible report. The only thing so far. Keeping Starbucks moving in a positive direction is the West business.
Now they also say that the company's guidance remains suspended for the balance of this fiscal year. So Starbucks is sort of like apple where they don't give a lot of direct guidance. They try to have analysts fill in the blanks. Now, the other thing that we can look at, is the balance sheet of the company, see what direction. This is heading, most of the metrics here. Also look like they're heading in the wrong direction. So take a look at this, the cash and cash equivalents.
This is basically just how much money the company has on hand. It went from six point four billion, Last year to three point, one, seven seven billion. So their cash was reduced by three billion dollars a year over year. Now, while their cash balance has declined substantially year over year by three billion dollars. There are long-term debt. Also, increased thirteen point
six billion dollars to 13.9. So now they have thirteen point nine billion, dollars long-term debt and increase by around three hundred million dollars year over year. So they're long-term debts not growing at a rapid Pace, but it's concerning when their cash is going down. While their long-term debt is going up. So, just a few minutes after this earnings report Starbucks is up, 1.6 percent. I think this makes sense investors are trying to make sense of their international
business. And there's still some questions that are unanswered. If we look over the current fundamentals with the update of this last quarter, this is what it looks like. The eight point one, five billion dollars is a record high for Starbucks, their evil to last quarter was 1.7 billion that still very strong, especially considering the macroeconomics here, the free cash flow was also very Very resilient, it was eight hundred and forty-one million dollars. We look at this trend.
That's right in line with its recent history. Now this is what the balance sheet looks like. You can see that we're comparing their cash levels to an abnormally High quarter. Three point, two five billion versus 6.6 billion. But this quarter is an outlier, they had a lot more cash than usual. Typically, they have somewhere around four billion, four point nine billion. So they're really not going down to dramatically in their cash levels.
If you look at the greater timeline, Still have more cash on hand than they did just two years ago and it's true that their debt has gone up a little bit. But again, if we look at this on a grater timeline, it's really not moving that much. So I'm not overly concerned about the debt levels here. And keep in mind that qual, trim does count Capital leases as part of the debt.
So around half of this debt is their leases, their rent, every single month, those are in the form of long-term contracts, which this records as debt, but in most cases, that's really not considered bad debt. And then, if we look at the shares outstanding, Ending. This is how it came out. Last quarter was one point one four, nine billion versus one point 147 billion. So the shares outstanding did go
down ever so slightly. So as of right now, Starbucks earnings was another beat Top Line and bottom line in my portfolio. I don't think it was the worst earnings report or the best, but I plan on holding it in my portfolio and I think that if the Chinese business, if the Chinese consumer ever gets back on track, I really think this company will take off right now. That it's a press valuation. Investors are concerned about their international business, and Starbucks has to prove them wrong.
We have to see things moving in a positive direction internationally now. Moving on from Starbucks, specifically, I want to take a look at the broader earnings results across the US market. Goldman Sachs says that so far, this is going better than feared. The big concern going into this earnings season, is that every company was going to report, terrible, earnings and terrible, guidance. And the market would go down another 30%, that was the big concern and that's not
happening, at least, so far. Now, here's the actual data of the 56% of the S&P 500 companies that have reported earnings so far more than half of them have beat analyst estimates. And this is a little bit better than what was expected. We were expecting most companies to not beat the analyst
estimates. Now, what I did in order to compare my portfolio against the S&P 500 is I listed out every single holding in my portfolio, every single individual, P. And then I also listed out my portfolio allocation and then I tracked every single Holdings Q2 earnings whether or not they reported and if they reported was their revenue, a beaut was their earnings per share a beat and what they forecasted. If they forecasted strong forecast, I highlighted it
green, it was neutral. I just put green and if it was a week forecast, I put red, and this is what the results look like. I have 15 Holdings of those 13, have reported earnings so far. We're still waiting on Disney and Target the notable misses in there. CPS estimates and revenue is Microsoft is the biggest miss this company. Shocked me when they missed both the top line and bottom line, because they never miss this company rarely ever misses their earnings and revenue.
But even as they miss, they gave such strong guidance. They forecasted double-digit operating income growth, which is incredibly strong in this environment. So, Microsoft technically missed the revenue and EPS that was a big miss. My Microsoft's roughly 11.9% of my allocation and the passive income account, but the rest of my companies, especially the top ones, the most important ones did, outperform Apple, beet revenue, and EPS bgb revenue and EPS, Costco Starbucks and Texas Roadhouse.
All were strong beats JPMorgan missed and I thought that they gave week guidance, Domino's, miss the revenue beyond their earnings and they gave what I consider to be weak guidance. You could, you could argue with that, but I put it in the week category Nikes. Strong across the board. It outperformed analyzed by a large degree and they gave surprisingly, strong guidance, Pepsi beat across the board, giving very strong guidance to ore prices.
One that they've missed on everything and their guidance looks pretty bleak Canadian Pacific beat on everything with strong guidance and Church & Dwight. Surprisingly, they be on their revenue, they missed on their earnings and they lowered their forecast. Their guidance was very weak, so that's one of the smaller Holdings, a brand new one to the portfolio making up point four
percent now. And I look over all the Stata I did some calculations to compare the performance of my portfolio and its earnings compared with a broader Market 56% of the S&P 500 companies have reported earnings of those 62% have beaten expectations and the passive income account. I hold 15 companies so far. 13 have reported earnings of those eight have beat their earnings a rate of 61 percent.
So I'm actually basically in line with the S&P 500 trailing it by one percent when it comes to percentage of companies that
be earnings. But when I wait my portfolio based on which company be earnings, keep in mind that the ones that are much bigger waiting, like, apple Vici, Costco Starbucks and Microsoft. They have a much bigger impact on my portfolio because these are fifteen, twelve eleven, eleven percent positions, while these bottom ones, here are point four point, six point seven, some heavily top weighted
towards these top companies. When I actually do this on a weighted adjusted basis, that Passive income portfolio, has 71 percent of the portfolio beating earnings, so 71% not counting Microsoft. So, is this the big bad earnings contraction? Everyone was talking about earnings going down and companies selling off in the market crashing so far. That hasn't happened. This is what's going on with these companies.
Most of them have beat earnings and the ones that have beat, it are even giving very strong forecast, So, based on their earnings of the previous three months and their forecast. Of the next three months. Most of them are forecasting. Very strong results. Now I realize that earning season isn't everything. It just shows you a snippet of how a company's doing in a very specific time and period and you're holding period for these companies. Should be more than three months.
So I wouldn't read into anyone earnings report without trying to look at the broader picture of your company's. But overall, when I do an assessment of the report card and how my companies are doing, I think they have very strong performance, and I think they'll continue with strong performance. Into the future. Now over the past month, I also do something where I track my dividend income month-over-month.
Now, before we get to my dividend income for last month, I have to do a quick shout out for today's sponsor of this video which is FTX u.s. you can go to the website, there's a link in the pin comment below for both mobile and desktop and the stock portion of this platform is available now so you can use it today. You can sign up, its hassle-free. It takes two minutes to sign up, and you've seen me use this before. I bought a little bit of Amazon. I'm already in the green.
By $400 on this company. So it's really taken off recently. You can buy and sell any time, the markets open using fractional, shares their part of finra and sipc's insurance, and if you use a refer code Carlson, my last name, you get $10. Credited to you upon your first
100 dollar trade. So sign up now, using the link in the description below and let me know what you think when I filter by dividends paid hair I didn't get a lot of dividends last month in July. I was only paid to dividends one from Nike which they pay a very Low-yield and it's a very small holding so it's just an eight dollar and fifty two cent dividend. But then we also have the chi which is a much bigger holding and a much higher yield.
This company paid me $445. So for the entire month of July I just had these two dividends Nike and Vici. I also track this on qual trim and I can go to the monthly chart here. This is what it looks like month over month last month. It was $454. Now this looks like a low month which it is but my portfolio is going to be a little bit more sporadic with the dividend payments. Some months, I'll have low months with $400 and then some will have these huge spikes with
886 dollars. What I'm looking at, is the average overall and the average is going up. Here's a dividend projection tool and call trim. That shows me my projected income over the next 12 months. You can see that month-over-month, some months, simply pay more than others. Some companies are grouped up and they pay more dividends on certain months than other ones. So, I have some months where it's going to be $900, $600 and $300, overall my month. Income is $614 Weekly's 141 on
average. And then one thing that I really like to calculate is my hourly wage. This is based off of working 40 hours per week. 52 weeks a year, no vacation. This is what this hourly wages. If my dividend portfolio was an employee that worked 40 hours a week. 52 weeks a year, no vacation, no PTO. I would make three dollars and fifty four cents per hour so this portfolio has that type of Of economic engine behind it, that's not a lot, right? That's such a small amount.
But keep in mind, this is passive income. So I have ambitious goals for this portfolio. I do want to get it to the point where it does generate a substantial amount of passive income. We can see the growth of the passive income, one year to the next, from 2018, 2019 2020 and 2021, we saw rapid growth, most of this was generated by new deposits. New money, being added to the portfolio and some of this was generated by gains in the portfolio.
Weekly cash flow and dividends being reinvested back into other dividend-paying stocks. Last year, my growth rate was 77 percent in dividend income. This year from 2021 to 2022. Is not going to be that quick right now. It's minus 26 percent so we will beat last year.
It is on track to surpass last year by the end of the year, but it's not going to be 77 percent because I took away some of the higher yielding Holdings like, BST and move that money into a Seh di. So I am fighting against some tough comparable so to speak. But I do plan on continuing to grow this, I would like to grow the amount of dividend income, I make 20 or 30 percent year-over-year, you do that long enough, these numbers in total dividend payments will become
substantial. So there's a look at Starbucks, its earnings and my portfolios earnings overall, I hope you enjoyed the episode. Make sure you subscribe to the channel if you're not already and I'll see you in the next one.