Keurig Green Mountain, Inc. (NASDAQ:GMCR), the Vermont-based coffee maker’s all set to announce its second quarter earnings on August 6. Pushed by the strong revenue and earnings growth, the company’s last earnings score sheet has displayed impressive figures. However, increasing commodity prices have been hurting Keurig’s profit margin in the recent times, a trend that’s likely to continue. Let’s delve deeper to find out what kind of performance we can expect this time.
Revenue Stands a Good Chance of Going Up
Analysts expect Keurig’s revenue to go up in the quarter, from $967.07 million in the year-earlier period to $1.05 billion. The analysts’ predicted growth rate of 8.90%, higher than their full-year estimate of 7.80% indicates that Keurig is on the right track.
Keurig Coffee Cup, Source: www.flickr.com
Though the company has surprised the Street for the last eight quarters, margins could go down in the present quarter owing to coffee price hikes. Price of Arabica coffee beans skyrocketed in April due to its taut supply from drought and flood-plagued Brazil. The trend is likely to continue as the weather office forecasts unfavorable weather conditions in the southern region of Brazil. Spiraling demand for finest quality coffee beans is also likely to push up prices. Archrival Starbucks Corporation (NASDAQ:SBUX), whose revenues depend big time on coffee, is reported to undergo a similar challenge.
Recent Alliances Could Help in Revenue Growth
Keurig Green Mountain, Inc. has partnered with several popular brands in the recent past which could help sustain its demand in the market. This gave the company a huge push, and helped yield a year-to-date return of 67.8%.
In late June, the company joined hands with Nestle USA in order to popularize K-Cups. K-Cups, a Keurig Green Mountain, Inc. product, are used for serving the company’s hot beverages. As a result of the multi-year deal, Coffee-mate coffee and creamer from the house of Nestle will come in K-cups for use on Keurig brewers. Partnership with the popular brand could aid in Keurig’s further revenue growth.
Keurig has also come together with the well-liked restaurant chain Subway, so that 30,000 Subway eateries across the US will station the K150 brewer series from Keurig Green Mountain, Inc. Moreover, Keurig’s alliance with Italian brewer Luigi Lavazza Spa is also expected to rake in more revenues for the company.
The coffee brewing company’s all set to enter cold beverage and soda business with the release of the Keurig Cold Machine. It’s also partnered with The Coca Cola Co. (NYSE:KO) for ten years to improve its brand value, by branding Keurig cold beverage systems with the Coca-Cola logo.
Earnings Expected to Get Even Better
Despite rising prices of coffee beans, profit margins for Keurig are expected to climb. According to the average analyst expectation, earnings could be $0.88 a share as against $0.82 per share in the corresponding period last year. Though the change is not phenomenal, it still comes as heartening news in the wake of escalating commodity prices.
Analysts expect its full-year earnings to clock at $3.78 per share, which seems to be an attainable goal given the way in which the company is moving ahead.
Putting Pieces Together
Growing demand for top quality coffee is a driving factor for Keurig, which in turn affects its earnings positively. Analysts are hopeful about the company’s impending earnings result. Let’s hope for a good show.