Weekly Notes on Coffee Industry: Starbucks & Keurig Green Mountain

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GMCR: Keurig Green Mountain logo
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Keurig Green Mountain

With coffee prices showing a bullish nature for the first half of 2014, improved weather and rain conditions in South America in the last calendar quarter of 2014 gave some respite to the coffee companies, as coffee prices dropped more than 15% over the same period. The prices touched its 12 month low at the start of March. However, the prices are showing some signs of a rebound, as May Arabica coffee prices were up 2.95 cents, due to the speculations of a drop in Brazil’s output of production this year at 44m-45.5m bags. [1] 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%. On the other hand, sugar prices touched a  6-year low, due to a high quantity of supply and lesser demand. [2]

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

Starbucks

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The coffee giant, Starbucks Corporation (NASDAQ: SBUX), delivered excellent results 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. 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 signed an agreement with Tingyi Holding Corp., the leading Chinese food and beverage producer, to manufacture and expand Starbucks’ ready-to-drink (RTD) products throughout China. [3] Moreover, on March 18, Starbucks’ Board of Directors announced a 2-for-1 stock split. Shareholders of record as of March 30, 2015 will be eligible for this split. The new shares will be payable on April 8, 2015. [4]

Starbucks’ stock has dropped from $98 to $94 during the last week and is now trading at close to $95. Our price estimate for the company’s stock is $92, implying a market cap of $70 billion, which is 3% below the current market price.

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. [5] On March 2, the company announced the addition of Keurig 2.0 K200 series to its well known Keurig 2.0 brewer series. The new Keurig 2.0 K200 has the ability to brew both a single cup and a four-cup carafe, and will be available at a retail price of $120 to $130. [6] On February 21, Keurig Green Mountain entered into an agreement to repurchase roughly 5.2 million shares of Keurig common stock beneficially owned by Luigi Lavazza at a purchase price of $119.18. [7]

Keurig Green Mountain’s stock declined from $125 to $114 during the last week.  Our price estimate for the company’s stock is $102, implying a market cap of $16.5 billion.

See our complete analysis of Keurig Green Mountain

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Notes:
  1. Coffee prices rise, as FCStone sees drop in Brazil’s output []
  2. Sugar flirts with 6-year low []
  3. Starbucks signs agreement with Tingyi Holding Corp. []
  4. Starbucks announces 2-for-1 stock split []
  5. Keurig Green Mountain FY 2014 earnings conference call []
  6. The Keurig 2.0 brewing system lineup expands with the addition of the new K200 series []
  7. Keurig Green Mountain announces repurchase of share held by Lavazza []