Green Mountain Soars On EPS Beat, New Starbucks Deal

Investor's Business Daily

Green Mountain Coffee Roasters (GMCR) reported stronger-than-expected earnings and extended its partnership with Starbucks, sending shares sharply higher late Wednesday as Americans' taste for on-demand premium beverages grows.

Earlier, SodaStream (SODA), maker of in-home soda and carbonated beverage systems, also topped quarterly forecasts.

Green Mountain Coffee, No. 1 on the IBD 50 list, said earnings rose 45% to 93 cents a share in its Q2, beating analysts' views by 19 cents. The maker of Keurig brewers and K-cup single-serve pods said sales rose 14% to $1 billion, in line with estimates. Green Mountain raised its full year EPS outlook to $3.05 to $3.15, well above analyst estimates of $2.85.

The company extended its alliance with Starbucks (SBUX) by at least five years while expanding the Starbucks brands involved.

Starbucks also is a rival, but its Verismo machines haven't hurt Green Mountain as much as feared.

Green Mountain shares shot up 15% late. During the regular session, the stock rose nearly 2% to 59.48, a 52-week closing high.

SodaStream Shares FizzleSodaStream said Q1 EPS rose 19% to 57 cents. Analysts expected 55 cents. Adjusted earnings rose 24% to 68 cents.

Revenue jumped 34% to $117.6 million, above analyst estimates of $113.1 million, but the growth was the lowest in four quarters. Asia Pacific sales declined year over year over distributor problems in Japan. They offset strong U.S. sales growth. Shares fell 2%, extending Monday's 3% loss from Friday's 52-week high.

Jim Chartier, an analyst at Monness, Crespi, Hardt & Co., blamed "weakness relative to investor expectations.

Consumption of beverages from craft beer to coffee, tea and energy drinks has risen as Americans splurge on small, affordable luxuries. "Customers are demanding better coffee, so everyone has stepped up their game," said Marc Riddick, senior analyst at Williams Capital Group. "It's good for the consumers, and prices have been coming down recently.

Green Mountain targets a wide demographic, from college kids to retirees. Coffee drinking typically rises when a person enters the workforce, notes Riddick. Keurig machines can be found at home or work, and customers can buy the coffee pods for machines they don't own.

Meanwhile, U.S. soft drink demand has steadily fallen, sinking 1.2% in 2012, according to Beverage Digest. But SodaStream's Q1 Americas sales surged 89%.

U.S. household penetration just passed 1%.

Partnerships KeyPart of SodaStream's success is its diverse offerings beyond soda, from energy drink syrup to iced tea, lemonade and juice.

In December it introduced a carbonated Kool-Aid. V8 Splash and Ocean Spray juice will launch this year.

Partnerships have been key to Green Mountain as well. In addition to its Starbucks pact, Green Mountain has relationships with Dunkin' Donuts (DNKN) and others. "The success is not just Green Mountain by itself, but a function for all these companies to deliver what the customer wants before they want it," Riddick said.

While the cost per cup of coffee is greater with Green Mountain's Keurig than with a traditional coffee pot, SodaStream is 20% cheaper than a 12-pack of soda from the grocery store, according to Chartier.

Green Mountain shares dived in late 2011 after bearish comments by Green Capital's David Einhorn. But they have been on the uptrend the past year.

Riddick doesn't see market saturation for Green Mountain soon. "This is a long-term story," he said.

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