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Keurig Green Mountain Inc Surges On A Hefty Earnings Beat

Keurig Green Mountain Inc
Keurig Green Mountain Stock surges from its lowest levels after third quarter earnings and revenues beat analyst estimates

Keurig Green Mountain Inc.’s (NASDAQ:GMCR) coffee pod and brewers sale continued to fall. However, it has a stable outlook for the current fiscal year that supports the stock price. Quarterly dividends were raised 13% to $0.325 per share in the fourth quarter fiscal year 2015 (4QFY15).Keurig Green’s shares surged around 18% in pre-market trading today, as investors capitalized on a relatively high short interest. The total number of short positions stood at 15.56 million on October 30, miserly off the one-year high of 16 million as on September 15.

The company’s gross margin during 4Q narrowed from 37.6% to 32.3%. The coffee pod’s sales dropped 9% to $861.2 million and brewer revenues declined 32% to $123.6 million. 4Q earnings per share (EPS) were $0.85, which is lower than $0.94 year-over-year (YoY). However, earnings were higher than consensus estimates of $0.71.

It has started productivity program for cost-cutting initiatives. The plan entails over $300 million in savings over next three years. The plan seems to be profitable in the reported quarter. The company reported 13% YoY decline in revenue at $1.04 billion but were higher than consensus estimate of $1.03 billion. Keurig CEO Brian Kelley said: “I’m particularly pleased with the benefits realized from our cost-reduction efforts as well as our strong cash generation, both of which exceeded expectations.”

Keurig Green raised annual dividend per share to $1.30 effective from February 2016. Adjusted earnings per share of $3.56 for 2015 were higher than company’s guidance of $3.25 to $3.45 per share. CFO Peter Leemputte said: “A company that has grown as fast as Keurig has a lot of opportunity for process improvement.”

Lower Brewer Sales Issue Can Be Resolved

The company has suffered from falling sales of its K-cups and low priced brewers in the past. The new cold beverage system-Keurig Kold was not perceived well by the sector. Investors had reservations with regards to the size of the machine that resulted in higher prices. Investors feared that high-priced machines may not be able to compete in its markets. According to the CEO, issues related to the machines are expected to resolve over time. The company has been promoting Keurig Kold machines in shopping malls and expects to sell 60,000 to 100,000 units next year.

Mr. Kelley is hopeful for the busy holiday season. He said: “Despite the questions about the strength of consumer spending this holiday season, we believe we are in a much better position than last year.”Third-quarter performance was helped by sales of K-cup pods and the company expects to increase its sales in the future. Mr. Kelley further added: “We’re realizing that the price point under $100 and the reusable My K-Cup are important to bringing new [customers] into the Keurig system.”

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