Keurig Green Mountain Gets Roasted After Earnings (GMCR)

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Nothing is working for Keurig Green Mountain (GMCR), maker of single-serve coffee brewers and K-Cup portion packs. Yet again the company reported a terrible earnings report as demand has gone into free-fall.

keurig stockWall Street is showing no mercy. As of this writing, GMCR stock had fallen a steep 27% on Thursday, dragging the year-to-date return down to a grueling 60% loss.

OK, so let’s take a deeper look at Keurig earnings. In the quarter, net income dropped from $155.2 million, or 94 cents per share to just $113.6 million, or 73 cent per share. Although, on an adjusted basis, Keurig earnings came to 80 cents per share, which was actually a one-cent beat.

But the big problem was on the top line. During the quarter, GMCR revenues fell 5.2% to $970 million, compared to the Street consensus of $1.04 billion.

For the most part, GMCR is having a tough time selling new brewers, which saw a 26% drop in sales in the quarter. But there was also a 1% fall in pod sales — the first time in the company’s history that pod sales dropped, although the company attributed the drop to product mix and foreign exchange rates.

Keurig Green Mountain has had to get more aggressive on pricing because of the competitive pressures. The company must fight against rivals like Jarden Corp. (JAH), Starbucks (SBUX), Nestle S.A., Mondelez International (MDLZ), Stanley Black & Decker (SWK) and Whirlpool (WHR).

But Keurig Green Mountain is also suffering from the awful launch of its Keurig 2.0 brewers. They were a bit pricey and required that only K-Cups from Keurig could be used, which caused lots of ire with customers. But the lackluster interest may also be a result of overall saturation in the market.

GMCR Stock Is Fighting an Uphill Battle

Don’t expect Keurig earnings to turn around anytime soon, either. The company has once again lowered its full-year guidance on sales, which are expected to drop in the low-single to mid-single digits. The prior forecast was for flat to low-single-digit growth.

GMCR is betting on cold-drink machine Kold, which is expected to launch in the fall. The company has worked on it for more than six years, even forging a partnership with Coca-Cola (KO). Oh, and KO also invested more than $2 billion for 16% stake in GMCR.

Yet the prospects for Kold look … well, kind of chilly. First of all, the rollout will start exclusively with online sales. All in all, this will likely limit the potential sales impact. Kold won’t get nationwide distribution in retailers until next year.

The pricing also looks too aggressive. Consider that a machine is expected to cost about $300 and that a soda serving will come to roughly $1. In comparison, rival SodaStream International (SODA) has solid offerings at below $100 and the servings are as low as 8 cents. Although, this has not been much help for SodaStream, as the company continues to have a tough time selling new machines. During the past year, SODA stock has lost about half its value.

Really, the only good news GMCR stock is that the company has upped its buyback to $1 billion and will also be cutting costs, which will result in a 5% reduction of the workforce (330 jobs).

Yes, GMCR stock’s forward price-to-earnings ratio is only 13. But don’t get sucked into a value trap. Let’s face it, the credibility of GMCR management is in tatters after consistently missing expectations, and there have been major issues with product innovation and pricing.

So until Keurig Green Mountain can show that things are back on track — on a sustainable basis — GMCR stock is likely to be dead money.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/08/keurig-green-mountain-gmcr-gets-roasted/.

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