Weekly Notes On Coffee Industry: Starbucks & Keurig Green Mountain

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Companies dependent on coffee are somewhat relieved, as the Arabica coffee prices for March 2015 futures declined back to its 5 month low of $1.70 per pound.  The price of Arabica coffee beans has declined nearly 22% after reaching its two-year high of $2.20 in October 2014. [1] Moreover, the success of counter measures taken for proper management of the Coffee leaf rust situation in Central American countries might just decrease the gap.

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 an impressive performance in its 2014 fiscal year, with all the major segments of the company reporting more than a 5% increase in comparable store sales. As a result, the company’s non-GAAP operating income grew 25% y-o-y to $3.1 billion. The non-GAAP EPS rose 21% y-o-y to a record $2.66 per share. ((Starbucks Q4 and FY 2014 earnings call transcript)) On December 17, the company opened a new Chengdu Taikoo Li store in China, as a part of its plan for innovation and expansion in China. The Starbucks’ flagship store is designed to introduce and encourage Starbucks’ Reserve Coffee — a rare and exquisite Arabica coffee. [2]

Starbucks’ stock dropped from $83 to $79 during the last week. Our price estimate for the company’s stock is $82, implying a market cap of $62 billion, which is just above the current market price.

See our complete analysis of Starbucks

Keurig Green Mountain

The K-Cups maker, 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 one hand, net portion pack sales grew 22% y-o-y to $950 million in the fourth quarter, primarily driven by a 28% increase in the portion pack volumes, but on the other hand, brewer sales declined 5% y-o-y in the fourth quarter, due to a decline in brewer volumes by 8% and brewer pricing by 11%. 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]

Keurig Green Mountain’s stock traded between the range of $134 to $138 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. Coffee March 2015 futures, www.nasdaq.com)) According to the International Coffee Organization, widespread rains in Brazil have caused the prices to come back down. The production of Arabica coffee in Brazil is expected to be nearly 6 million bags lower in 2014-2015 compared to last year. However, the organization is anticipating the improved conditions in Columbia will recover most of the loss. ((Rains in Brazil dampen market spirits but production in 2014/15 estimated lower- Coffee market report, November 2014 []
  2. Starbucks China opens new flagship store; announces first-of-a-kind partner development program []
  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 []