Keurig Green Mountain Gets Roasted

One of America’s abrupt trends, the coffee pod, has been dominating the coffee industry with introduction of the Keurig coffee machine, though the parent company is getting completely roasted. Keurig Green Mountain Inc GMCR sunk nearly 30 percent in Thursday’s pre-market session. So what caused the trendy company, which supplies Americans and Canadians with their favorite drink, to collapse so drastically?

The steep drop came in just after the popular speciality coffee-maker company reported disappointing quarterly results; it reported a 27 percent decrease in profits, or $0.73 per share on sales of $969.6 million. Analysts were expecting earnings of $0.79 per share on revenues of $1.03 billion. Keurig reported reduced sales on both its coffee pods alongside its brewing systems.

To add fuel to the fire, Keurig announced that it will cut 5 percent of its 6,600 employees (330 jobs) in order to reduce costs by ~$300 million in the next three years. The coffee specialist also reduced its earnings per share forecast for the fiscal year, specifying that it plans to spend ~$100 million on its cold-drink system. It also mentioned the rising coffee prices, which will take a toll on sales of its coffee pods in the near future.

The company’s Kold system will allow consumers to make sports drinks, sodas, and other beverages with an easy click of a button, but it will be slightly more expensive than the usual Keurig system, at a price of $369.

Wall Street analysts had something to say about the coffee-maker:
Morgan Stanley: Analyst Matthew Grainger downgraded the stock from Overweight to Equal-weight rating and slashed his price target from $110 down to $60. He pointed out the risk of erosion and feared the company’s ability for sustainable growth in earnings.
Wedbush Securities: Reiterated with a Neutral rating; reduced price target from $85 down to $67.
Canaccord Genuity: Downgraded from Buy to Hold rating. Price target lowered from $120 to $65.
Susquehanna Bank: Downgraded from Positive to Neutral rating.

SUMMARY: 3 Downgrades, 1 Reiterate; 2 Neutral, 1 Equal-weight, 1 Hold rating. Price target range from $60-$67.

The stock is down nearly 44 percent year-to-date.