Weekly Notes On Coffee Industry: Starbucks & Keurig Green Mountain

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Coffee prices drop to their 15-month lows, as Arabica Coffee July futures fell below $1.30 last week. [1] This is due to speculations of increasing global supplies and improved weather conditions in Brazil, the world’s largest producer of coffee. Moreover, production forecasts for Colombian coffee were revised higher by USDA. [2] However, it is estimated that the demand will still outpace the production. On the other hand, the National Weather Service forecasts a 90% certainty of El-Nino continuation through this summer. This might be devastating to all the crops in South American and Asian countries. In the past, El-Nino occurrences have led to drought situations in Central and South American nations, impacting coffee prices. [3]

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

Starbucks

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Starbucks Corporation (NASDAQ: SBUX), reported strong numbers in its second quarter for fiscal 2015, as the company’s consolidated net revenues increased 18% year-over-year (y-o-y) to $4.6 billion, with a significant contribution by China & the Asia-Pacific region.. [4] The company’s China and Asia-Pacific (CAP) segment continues to outperform with 12% growth in the comparable store sales in the March ended quarter. Due to the recent drop in coffee prices, Starbucks locked 70% of its coffee supply for 2016. Meanwhile, Starbucks launched some new innovative menu items for the summer season, including Mini Frappucino, Frappucino Sugar Cookies, Raspberry Swirl Pound Cake, and Chicken Artichoke Panini.

Starbucks’ stock increased from $50.50 to $51.50 during the last week. Our price estimate for the company’s stock is $48, implying a market cap of $72 billion, which is 6% below the current market price.

See our complete analysis of Starbucks

Keurig Green Mountain

Keurig Green Mountain (NASDAQ:GMCR) reported dull numbers in its Q2 earnings report for the fiscal 2015 reported on May 6. Lower brewer and accessory sales partially offset the growth in the sales of portion packs and pods, resulting in just a 2% year-over-year (y-o-y) increase in the company’s net sales, to $1.127 billion. Sales of pods (portion packs) grew 7% y-o-y to $956 million, driven by a 14% y-o-y increase in the volumes and a 1% increase in the pricing, whereas sales of brewers and accessories declined a massive 23% y-o-y to $106 million, driven by a 22% y-o-y decline in sales volume. [5] In the Keurig Kold Investor Presentation, the company mentioned that it is going to release the cold brewer in the fall of 2015 on online platforms, and later on in retail stores by the end of holiday 2016. Such a delayed entry of cold brewers to retail shelves led to a drop in the stock price.

Keurig Green Mountain’s stock dropped from $94 to $88, the 12-month low for GMCR, and later recovered to $90 during the last week.  Our price estimate for the company’s stock is $103, implying a market cap of $16.7 billion, which is more than 10% above the current market price.

See our complete analysis of Keurig Green Mountain

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Notes:
  1. Arabica Coffee July futures, barchart []
  2. Coffee hits 1-year low on production forecasts []
  3. El-Nino near-certain to last through summer []
  4. Starbucks Q2 2015, earnings call transcript []
  5. Keurig Green Mountain Q2 2015, earnings call transcript []