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Keurig Green Mountain On A High As Earnings Soar

August 07, 2014 | About:
ICRAOnline

ICRAOnline

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It’s celebration time for the Vermont-based Keurig Green Mountain, Inc. (GMCR) as it reported remarkable figures during the recently concluded third quarter. Not only did the company post decent revenues, but it also performed brilliantly well as far as the bottom line is concerned. Let’s take a closer look at the result for a better grasp of Keurig’s performance.

A snapshot of the result

During the quarter, Keurig posted total revenue worth $1.02 billion, compared to $967.1 million in the year-ago quarter, while earnings went up to $155.2 million year-over-year from $116.3 million, escalating from $0.73 a share to $0.99 a share. This growth was mainly on the back of its single serve segment, which rose a decent 9%. However, the company’s usual coffee business consisting of bagged and fractional divisions could not set the cash box ringing.

The coffee-maker pulled off a gross profit of $444.6 million, as against $407.6 million in the corresponding quarter last year. This helped the gross margin reach 43.5% of net sales, up 140bps from that of the year-ago period. The rise in gross margin was basically driven by a drop in the price of green coffee and optimal efficiency of logistics. Conversely, the surge was balanced out by surging costs of portion pack packaging material, as well as discouraging net price realization in case of both portion packs and brewers.

Keurig was successful this quarter in terms of free cash flow. While the year-to-date cash flow was a little over $600 million, cash generated was $1.2 billion for the quarter. This would mean a lot to the company as it provides a solid chance to not just carry on with its share repurchase program and dividend exercises but also an opportunity to devote funds for company’s growth, ultimately proving to be beneficial for the shareholders.

North America emerged as a profitable market for the company, serving up 7% hike in its top line as compared to the prior year period. Besides the local market, Canada did well on a local currency basis, strengthening revenues by 5%. On the other hand, Canada’s contribution in revenue fell by 2% from the general point of view.

What does the journey ahead look like?

Keurig expects to put up a striking show in the fourth quarter, on account of which it has increased its earnings guidance for the full year. The outlook for the full year now stands between $3.71 and $3.78 a share, as opposed to earlier predictions of $3.63 to $3.73 a share. For the fourth quarter, earnings are anticipated to range between $0.68 and $0.75 a share, with The Street’s prediction being $0.86 per share.

The company’s revenues could also go up in the next quarter, mainly in portion packs, firstly because Keurig’s base growth that was forecasted to rise between 25% and 30% year-over-year happens to be on track. Another reason for the top line surge would be the gains from the company’s partnerships that include Nestlé coffee-mate K-Cup packs, Harris Teeter and its store brand, Target and its Archer Farms brand, and BJ's Wholesale Club along with its Wellsley Farms brand. The company has been joining hands with unlicensed brands in the past and expects to carry on the trend, anticipating a move such as will add an edge to the fourth-quarter revenues.

Final words

Keurig displayed an encouraging earnings result, which it expects to become even better in the forthcoming quarter. The impending launch of Keurig 2.0 system and making portion packs attuned to these machines could help materialize this ambition. Analysts and industry experts are looking forward to a great performance for the full-year. Let’s keep a close watch on the stock and see how the story unfolds.


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