Weekly Notes On Coffee Industry: Starbucks & Keurig Green Mountain

Due to political uncertainty in Brazil, the country’s currency the ‘Real’ fell roughly 30% against US Dollars over the last 3 months, reaching a 12-year low. As a result, banks such as Goldman Sachs and Citibank have slashed the price forecasts for Coffee and Sugar by nearly 31%, according to Reuters. ^[1] Sugar prices are at its lowest levels in the last 6 years, hovering at around 13 cents per lb, and the forecasted price for the second quarter has dropped 3 cents to 13.6 cents per lb. ^[2] On the other hand, the average forecast price for Arabica coffee fell from $1.90 per lb to $1.52 per lb.

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

Starbucks

The coffee giant, Starbucks Corporation (NASDAQ: SBUX), continues its strong momentum in its second quarter for the fiscal 2015, as the company’s consolidated net revenues incresed18% year-over-year (y-o-y) to $4.6 billion, with a significant contribution by China & the Asia-Pacific region. Starbucks’ global comparable store sales increased 7% in the second quarter, with a 3% rise in the customer traffic. ^[3] The highlight of the quarter was the comparable sales growth of 12% in the China and Asia-Pacific region (CAP). This segment showed tremendous positive growth, with revenues increasing 124% y-o-y, and a 29% y-o-y increase in the operating income. However, the operating margins dropped 1390 basis points y-o-y to 18.9%, due to the impact of acquisition of Starbucks Japan. Due to the recent drop in coffee prices, Starbucks locked 70% of its coffee supply for 2016.

Starbucks’ stock increased from $48 to $51 during the last week. Our price estimate for the company’s stock is $45, implying a market cap of $68 billion, which is 13% below the current market price.

See our complete analysis of Starbucks

Keurig Green Mountain

Keurig Green Mountain (NASDAQ:GMCR) is slated to release its Q2 2015 earnings report on May 6. On March 30, Keurig Green Mountain and Reily Foods Company announced a multi-year manufacturing and distribution agreement for New England brand coffee, New Orleans Famous French Market brand coffee, and Luzianne brand iced tea pods for Keurig’s hot brewer systems in the U.S. and Canada. ^[4] Earlier in March, the company announced a multi-year agreement with DS Services to offer DS Services’ Javarama coffee in K-Cups for Keurig’s hot brewer systems. ^[5]

Keurig Green Mountain’s stock traded between the range of $112 and $116 during the last week.  Our price estimate for the company’s stock is $102, implying a market cap of $16.5 billion, which is roughly 11% below the current market price.

See our complete analysis of Keurig Green Mountain

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More Trefis Research

1. Coffee, sugar price forecasts slashed up to 31 % as Brazil Real falls [↩]
2. Sugar flirts with 6-year low [↩]
3. Starbucks Q2 2015, earnings call transcript [↩]
4. Keurig Green Mountain and Reily Foods company announce partnership [↩]
5. Keurig Green Mountain and DS Services announce partnership [↩]