Starbucks Taps PepsiCo for International Growth: What Investors Need to Know

By Markets Fool.com

Starbucks shareholders had a lot to celebrate last week after the java giant reported awe-inspiring third-quarter results. Net profit surged 22% to a record $939 million in the period. Total revenue, meanwhile, increased 18% to $4.9 billion from the year-ago period. This, together with, earnings-per-share of $0.41 (also in record territory), led to a resounding triumph over Wall Street's expectations for both the top and bottom lines in the quarter.

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Investors have rewarded the coffee retailer by pushing its shares higher by as much as 40% so far this year. With the stock now trading near its 52-week high of around $57 per share, many investors worry they've missed the rally. Fortunately for these folks, I believe Starbucks stock has much more room to run -- particularly thanks to its budding digital platform and a new global partnership with PepsiCo .

A partner in crime
Two of America's favorite beverage giants have officially joined forces. During Starbucks' third-quarter earnings call the company announced a strategic partnership with Pepsi that will bring its ready-to-drink coffee beverages to Latin American markets in the year ahead including the Caribbean. Chile, Colombia, Costa Rica, Guatemala, Mexico, Panama, Peru, Puerto Rico, and Uruguay. While this tie-up between the two beverage companies is significant, it isn't surprising.

Starbucks and PepsiCo already have a proven track record of success together. The two companies, for example, teamed up more than 20 years ago to create the North American Coffee Partnership or NACP. That organization has since gone on to dominate the ready-to-drink space in the U.S., with more than 97% market share today. Therefore, history is certainly on Starbucks and Pepsi's side when it comes to replicating this success in foreign markets.

Source: Starbucks ready-to-drink beverages.

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In addition to their pre-existing relationship status, Pepsi is also an ideal fit for Starbucks' international growth ambitions because of its vast distribution network and expertise in the region. In fact, PepsiCo has been running operations in Latin America for more than 100 years, thereby making it somewhat of a market expert.

Starbucks' shareholders should be happy about this deal because it will significantly boost the specialty coffee retailer's consumer packaged goods business. Sales from consumer packaged goods rose more than 5% in the latest quarter, though we should see an even greater return in the quarters ahead once Latin America comes online. Moreover, many industry experts now believe Starbucks' CPG business could one day rival that of its retail business.

Additionally, Starbucks knows there is strong demand for its products in Latin America. That's particularly true considering the company has successfully grown its presence there to what is now more than 870 stores in 14 markets throughout Latin America. Ultimately, this existing brand presence and store footprint should help Starbucks and PepsiCo grab a significant piece of the $4 billion Latin America ready-to-drink segment in the years ahead.

The article Starbucks Taps PepsiCo for International Growth: What Investors Need to Know originally appeared on Fool.com.

Tamara Rutter owns shares of PepsiCo and Starbucks. The Motley Fool recommends PepsiCo and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.