Weekly Notes On Coffee Industry: Keurig Green Mountain & Starbucks

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GMCR: Keurig Green Mountain logo
GMCR
Keurig Green Mountain

The coffee industry saw its ups and downs in 2014, with the price of Brazilian Natural Arabicas rising nearly 80% in the first 10 months of 2014 to reach 197 cents per pound in October 2014, according to the International Coffee Organization. [1] However, in the last three months, the coffee prices have dropped by more than 15%, due to improved weather and rain conditions in South America. Global production of coffee for 2014/2015 is now forecast at 149.8 million bags, which is 2.7 million bags less than the previous year output. World Arabica production is now expected to decline for a second consecutive year, whereas the Robusta coffee production is expected to improve again. As a result, the share of Arabica coffee has decreased from 62% to 55%.

Source: USDA

Here’s a quick round-up of some news related to the coffee related companies covered by Trefis.

Relevant Articles
  1. Scenarios That Can Impact Keurig Green Mountain’s Stock
  2. Scenario: Is This The Stagnation Stage For Keurig Brewers?
  3. Dull Keurig 2.0 Launch & Brewer Recalls Hamper Keurig’s Revenue Growth In Q1
  4. New Brewer Platforms To Drive Keurig Green Mountain’s Growth In 2015
  5. Dr Pepper Snapple- New Addition To Keurig Green Mountain’s Arsenal
  6. The Year 2014 In Review: Keurig Green Mountain

Starbucks

The coffee giant, Starbucks Corporation (NASDAQ: SBUX), delivered yet another impressive performance in its first quarter for the fiscal 2015, as the company’s consolidated net revenues rose 13% year-over-year (y-o-y) to $4.8 billion, with a significant contribution by each segment. Moreover, the company’s operating income rose 12% y-o-y to $916 million and non-GAAP EPS rose 16% y-o-y to a record $0.80, primarily due to the gain on the acquisition of Starbucks Japan. [2] The highlight of the quarter was the company’s gift card initiative and mobile payment initiative, which led to an increase in customer count. On the other hand, the company plans on expanding its base in China and plans to take the store count in the country to 3,400 by the end of fiscal 2019.

Starbucks’ stock has risen from $82 to $89 since the release of its Q1 report on January 22. Our price estimate for the company’s stock is $82, implying a market cap of $62 billion, which is 7% below the current market price.  We are updating our model with the recent earnings.

See our complete analysis of Starbucks

Keurig Green Mountain

Keurig Green Mountain (NASDAQ:GMCR) ended its 2014 fiscal year on a high note, with a 14% year-over-year (y-o-y) growth in net revenues in the fourth quarter. [3]  On December 4, the company announced its decision to acquire the remaining 85% outstanding equity of MDS Global Holding Ltd. (Bevyz), in a transaction worth $220 million. [4] The very next week, the company renewed its partnership with Caribou coffee, with a 10-year agreement, which includes the manufacturing, marketing, distribution, and sale of Caribou coffee in Keurig portion packs. [5]  On January 7, Keurig joined hands with Dr Pepper Snapple (NYSE:DPS) to sell the latter’s branded capsules to be used in Keurig Cold machine. [6]

Keurig Green Mountain’s stock declined from$133 to $127 during the last week.  Our price estimate for the company’s stock is $108, implying a market cap of $17.5 billion.

See our complete analysis of Keurig Green Mountain

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Notes:
  1. ICO indicator prices, monthly averages []
  2. Starbucks Q1 2015 earnings call transcript []
  3. Keurig Green Mountain FY 2014 earnings conference call []
  4. Keurig Green Mountain to acquire Bevyz Global Ltd []
  5. Keurig Green Mountain and Caribou coffee announce expanded agreement []
  6. Dr Pepper Snapple Group, Keurig to bring products to Keurig Cold system []