Keurig Green Mountain (GMCR) reported solid results in the second quarter, which caused its stock prices to soar more than 10%. The company had been performing well since the beginning of this year, and with its recent results, it should continue with its growth. Moreover, Green Mountain has also entered into a strategic partnership with J. M. Smucker and Coca-Cola, which could take the company to new heights in the future. Let us go into a detailed analysis of Green Mountain has performed and what are its future prospects.
Its revenue for the quarter increased 10% to $1.1 billion as compared to last year. Similarly, its net income rose 21% to $170 million from the year ago period. Going forward, the company has some key partnerships and products under its sleeve that will further enhance its performance.
Going forward, the company has great expectations from its Keurig Cold systems. As a result, it has planned to launch its Keurig Cold System by 2015. Management believes that the Keurig Cold system will expand its market in the future. In fact, the company has planned to build a new Keurig Cold production center in Vermont. In addition, it has plans to start its first dedicated commercial Keurig Cold production facility in the Southeastern United States. And the company has already started commercializing the product.
A key deal
The company has been focusing a lot on the Keurig Cold system. It is being backed by beverages giant Coca-Cola in this endeavor. Green Mountain has signed a commercial and strategic deal with Coca-Cola for a period of 10 years. In this Coca-Cola has purchased a 10% stake in Green Mountain for $1.25 billion. Under this agreement Coca-Cola will provide access to its beverage brands in the U.S., along with more than 200 countries globally. Considering these factors, Keurig Cold system’s future prospects seem to be bright.
These two companies will join hands for the next ten years, which will produce Coca-Cola's brands in single-serve pods, or K-cups and these K-cups will be produced using Green Mountain's upcoming Keurig Cold system. This deal will help Coca-Cola to expand its market by identifying emerging consumer trends and provide it an edge over its peers.
Moreover, to support this initiative, Coca-Cola has doubled its advertising budget and will spend another $1 billion in advertising by 2016. Coca-Cola is a well established brand globally and it is pushing this product across its markets. This will, in turn, benefit Green Mountain and will enable it to increase its own addressable market.
Green Mountain has also entered into a strategic partnership with Smucker. Under this agreement, the two companies will expand their successful partnership for the manufacturing, marketing, distribution, and sale of the Smucker family of coffee brands. Smucker's brands such as Folgers, Folgers Gourmet Selections, Cafe Bustelo, and Millstone are sold as Keurig portion packs, and now they will work with Green Mountain's new consumer and commercial brewing systems.
This deal will also strengthen Smucker's sales as well. The introduction of new products such as Keurig Bolt and Keurig 2.0 brewers will enable Smucker to sell its coffee products into more channels.
Green Mountain has also introduced Lavazza, which is a well-known coffee brand in Italy, to the Keurig K-cups system. Management expects that the introduction of the Keurig 2.0 hot system will enhance Green Mountain’s performance further. To drive the adoption of its upcoming brewer system, Green Mountain will ship each Keurig 2.0 brewer this holiday season with an actual carafe and an assortment of the K-Carafe packs.
Overall, Green Mountain has performed extremely well this year. Currently it has a trailing P/E of 30 and a more promising forward P/E of 26, which also reflects its earnings growth in the future. Analysts are of the view that its earnings are expected to grow at an annual rate of 17% for the next five years. Considering these factors, Green Mountain is expected to soar even higher from the current levels.