By The Cup Or By The Carafe: Keurig Green Mountain Surges

Sep. 1.14 | About: Keurig Green (GMCR)

By Hiland Doolittle

Late last week, Keurig Green Mountain (NASDAQ:GMCR) revealed more stunning distribution partnerships and topped off the serving with a technology revelation investors and market makers liked. If any one company in the Specialty Foods Sector has figured out their niche (and everyone else's), it has to be Keurig Green Mountain. The good news just keeps coming from the Waterbury, Vermont-based provider that has created a distribution blend of competing brews for its innovative single and multi-cup brewing systems. Consumers and investors are enjoying the results beyond their expectations.

In July, 2014, Packaged Facts released their 8th edition report entitled Coffee and Ready-to-Drink Coffee in the US: Retail and Foodservice. The report mentions new initiatives by leading brands to go greener, increase sustainability and produce more recyclable products. But, it will be a long time before anyone catches up with Keurig's single brew technology, which is already viewed as an extremely sustainable model. Recycling has arrived in US retail coffee and GMCR sets the trend.

As the report indicates, the $48 billion retail and foodservice coffee marketplace has not topped out. At home, at work and on the go, US consumers drink coffee, lots of it. Consumers are infatuated with coffee shop quality and while small distribution outlets and residences are filled with GMCR machines, the technology has yet to be embraced by corporate offices, the next target for GMCR. With Keurig's newest technology innovation, I look for GMCR to sweep through corporate America.

Management at GMCR can only be described as aggressive and progressive. Earlier this year, GMCR reined in Italian specialty coffee maker Luigi SpA to a multi-year deal. GMCR now provides their trademark K-cup packs for Keurig single cup coffee brewers. But, the Luigi SpA deal only set the stage for what was to follow.

Last month, GMCR inked another multi-year deal with the US division of Nestle's, manufacturers of popular coffee-mate creamers and other products that will complement brews produced by Keurig machines. At the time, this was a major feather in the GMCR cap.

The company already has working single and multi-cup deals with Dunkin' Brands Group, Inc. (NASDAQ:DNKN), Unilever PLC Sponsored ADR (NYSE:UL) and Starbucks Corporation (NASDAQ:SBUX). GMCR sales of Eight O'Clock and Starbucks surged 500 percent in 2013. For the last 52-weeks, shares of GMCR have reflected consumer and investor confidence in management's aggressive expansion.

On August 25th, 2014, Keurig announced the release of its new Keurig 2.0 hot beverage brewing system. Now, consumers can not only enjoy single-cup brewing technology from Keurig machines but the company's newest innovation produces a four-cup carafe that is sure to hit the market in a big way.

President and CEO, Brian Kelley told media; "Our new Keurig 2.0 system is the next innovative step for our hot beverage brewing system. Eleven years ago, we revolutionized the way consumers brewed coffee in the home with a single cup system, and we've used the knowledge and expertise we've gained along the way to form the basis for continued innovation. We're thrilled to have changed the game yet again by offering consumers the ability to brew a variety of sizes, from a single cup to a carafe, and choose from more than 290 varieties from more than 50 brands, all within one system, Keurig 2.0." By any standard, this is impressive progress and should lead a host of GMCR products into America's corporate coffee rooms post haste.

And, that's not all folks! The news just keeps coming. The same day, that CNBC's Jim Cramer touted GMCR as a top pick for investors, CNBC and Newswire reported Keurig's new partnership with Kraft Foods for the company's single brew machines. This deal will bring stellar brands, like Maxwell House and Gevalia, among others, under the GMCR roof. It wasn't that long ago that GMCR announced deals with Coca-Cola and McCafe. The Kraft announcement rounds out the profile handsomely. The market responded quickly to the news.

In 2013, Keurig coffee sales topped $1.4 billion, a gratifying 25 percent increase. Of that volume, single cup sales accounted for 97 percent of company sales. If there are any doubts about the Keurig model, put them to rest. GMCR now corners about 15 percent of the US retail market, second only to Smuckers. The company's proprietary brand claims 38 percent of the single cup marketplace, the largest share in the sector. The direction for GMCR appears upside.

Over 52-weeks, GMCR has traded in a range from a low of 56.87 to the 52-week high of 136.91. Shares have appreciated over 60 percent in the last year. And, why not? GMCR's rise is a credit to its strong and engaged management that has paid attention to the fulfillment of the successful model. Capital Cube indicates the dividend quality is strong and over the past 12 months the company has been the earning leverage leader among its peers with robust sales and revenue gains.

GMCR benefits from better margins than its peers. Gross margins, net margin, EBIT, operating margin and all profitability indicators remain the strongest in this sector. With its new multi-cup technology to add to the mix, look for stronger sales in the future.

The new technology will soon have Keurig competing for that morning cup of brew at the office. It is easier than ever to see GMCR move into the office environment. I like everything about Keurig Green Mountain and feel the company's best brewing days are ahead. I like GMCR now and in the long term.

The views and opinions expressed above are those of the author and do not necessarily reflect the views of, AnalytixInsight, Inc., its affiliates, or its employees.