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Green Mountain's Keurig Unit to Shift

Zacks Equity Research

Coffee manufacturer Green Mountain Coffee Roasters Inc. (GMCR) is relocating its Massachusetts-based Keurig business unit to Burlington, Mass.

The company is relocating the business to Burlington, Mass, which is of a larger capacity than the Massachusetts facilities and would expectedly help the company in its innovation efforts.

The company will shift its business to Burlington from the three existing Massachusetts facilities at Reading, Wakefield and Woburn, in phases over the next several years.

The Keurig business unit of Green Mountain is a pioneer and leading manufacturer of gourmet single-cup brewing systems. It sells beverages produced by other business units of the company through At Home and Away From Home channels.

Green Mountain Coffee is geared up to make the single-cup brewing system popular in America and has entered into several strategic distribution agreements to rope in more and more popular brands like Dunkin Donuts and Starbucks into its portion pack systems. Through these agreements, Green Mountain is aligning with the strongest coffee brands to support a range of consumer choices and taste profiles in Keurig Single-Cup Brewing system.

Recently, in May 2012, the company bagged a multi-year agreement with Eight O'Clock Coffee Company, by virtue of which the brands Eight O' Clock coffee, Tetley tea, and Good Earth tea will be available in K-Cup and Vue packs for Keurig Single-Cup Brewing systems.

Our Recommendation

Green Mountain, unlike its other coffee producing peers, has diversified its business and is a complete unit of coffee making as well as brewing.

However, Green Mountain’s revenue is highly dependant on its Keurig business. The main patents on the K-Cup will end in September 2012. Well known brands and close competitors like Starbucks Corporation (SBUX) and Caribou Coffee Roasters will have other alternatives, which will hurt Green Mountain’s fundamentals.

Currently, Green Mountain carries a Zacks #4 Rank (short-term Sell rating).

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