Keurig Green Mountain (GMCR, Financial) once again delivered impressive numbers on the board for the third quarter, driven by increased shipments that rose 13%, along with 10% growth in its coffee-portion pack, including a 15% unit gain during the quarter. However, there were raised eyebrows on account of declining sales for its brewers and accessories division that dipped about 4% for the quarter.
The Waterbury, Vermont-based company recorded striking 33.45% growth in its net income to $155.2 million or earnings of $0.94 per share as compared to $116.3 million or earnings of $0.76 per share in the same quarter last year, topping the analysts’ estimates of $0.88 earnings per share for the third-quarter 2014. Its sales for the quarter came in at $1.02 billion from $967.1 million in a year ago quarter, missing the consensus estimates slightly to $1.05 billion for the quarter.
How the future looks
Looking ahead, Keurig Green Mountain expects its earnings of $0.68 per share to $0.75 per share and its sales are forecast to grow at high single-digit to low double-digit for fourth-quarter 2014 while the analysts anticipate earnings of $0.86 per share for the quarter. This disappointing guidance has led its share tumbling approximately 2%. However, the investors should consider this opportunity to buy more of the shares as the stock has appreciated around 77% since the beginning of the year and has a lot of room to grow in the future.
In addition, the company has raised its bottom line guidance for the full year to earnings of $3.71 per share to $3.78 per share from earnings of $3.63 per share to $3.73 per share that should give investors a sense of satisfaction and growth prospects in the future.
The company expects its Keurig-installed base to grow approximately 25% to 30% during the fourth quarter. Keurig Green additionally expects more Keurig deals during the fourth quarter in private-label and retailer-owned brands that should have a huge impact on its shipment that is assumed to take place at the start of the fourth quarter.
This should drive its growth, coupled with strategic initiatives the company is executing this year such as launch of its most awaited Keurig 2.0 hot beverage system, transition to portion pack integrated with 2.0 systems, strategic efforts to include new brands among its licensed Keurig partners and broadening its international channels.
New products to note
Keurig Green remains on track to launch its new Keurig 2.0 hot platform to its consumers across the world during the holiday season. The company has accelerated the production for its Keurig 2.0 brewers and has started shipping this product across the various markets it has worldwide. The Keurig 2.0 comes with innovative new features and augmented functionality based on consumer preferences and will be available to consumers with a K-carafe and assortment of K-carafe packs.
The new Keurig 2.0 is also expected to drive non-Keurig users who haven’t yet ordered brewers as it provides various reasons to order one due to its simplicity and various other option like brewing larger volume. The consumers now have choice to approximately 50 brands and 275 beverages preferences available with its new Keurig 2.0 hot system that should certainly drive its revenue in the fourth-quarter and next fiscal year 2015 as the company expects the new Keurig 2.0 to assist them capturing a significant portion of 25% coffee consumption worldwide.
In addition, Keurig Green is also working aggressively to transition its interactive portion packs to this new Keurig 2.0 system. The company believes that the transition to portion packs, which are compatible with 2.0 systems, should enlarge the Keurig system penetration with broader choice and variety to its consumers across the world.
In fact, Keurig Green has now built 100% of its inventory with 2.0 enabled that should give consumers a total availability of its new features and new Keurig 2.0 brewers. Besides, the company is actively engaged with customers and retailers in order to make sure that they keep rotating portion pack inventories for forthcoming launch of cure 2.0 system.
Meanwhile the company is also concentrating on its away-from-home channels as it recently declared its food service with Subway a win. Keurig Green has installed its single-serving solutions at around 20,000 Subway locations. The company is benefiting tremendously through its franchises around the world as these franchises assist Keurig in operational comfort, cost competence, augmented beverage freshness, incremental choice for consumers and moderate coffee waste.
Keurig sees tremendous growth opportunities in the away-from-home markets for its single serve Keurig solutions in both the operator as well as the consumer perspective. The company has recently launched its 64-ounce commercial batch brewing system to approximately 20 Keurig-authorized distributors and remains on track to enhance its distribution channel this fall that should drive growth for its away-from-home division.
Apart from these strategic initiatives, the company is also getting ready to launch Keurig Cold System as it plans to present this product to its customers in fiscal 2015. Keurig Green has started the initial charcoal production in Vermont, where it plans to execute the first pod productions lines and has recently closed on the $585,000 square foot site for its first dedicated Keurig cold production facility in Lithia Springs, Georgia.
Conclusion
Keurig Green is currently trading at the trailing P/E of 37.33 and forward P/E of 32.32 that unveils reasonable valuations for the stock that has remarkable growth prospects in the future. Also, Its profit and operating profit margins for the trailing twelve months should excite the investors as it stands at 12.77% and 19.63% respectively, while its return on equity for the trailing twelve months is 19.47%. Moreover, the analysts have estimated CAGR of 16.25% higher than average industry CAGR of 13.25% for the next five years indicate solid growth for stock in the future.
