Starbucks is the only choice
Starbucks wants its taste to get to the most consumers and keep them loyal via any product channel. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is becoming entirely about the single-serve cups. Traditional coffee is fading away. The shift works for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), for now, because it has lower associated costs to make the single-serve cups. The deal with Starbucks is for five years. In the mean time, Verismo could be the replacement machine of choice when Keurig machines break down. Starbucks could make a real push into winning the coffee machine market. The switch to the single-serve business is a good thing for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s numbers, but it offers less diversity in operations if single-serve hits difficulty.
Green Mountain came in on the bottom of its expected 14%-18% growth in revenue, at just 14%. The company completely crushed it on earnings, but revenue was not so great in light of expectations. I am not one to care too much about analyst expectations, and it amounted to a miss of $20 million on revenue. I think it is more worrying that the company came at the bottom of its own range.
Beating on earnings is great and gross margins increased due to a more favorable coffee environment, but favorable coffee prices are a short-term situation. Lots of things can happen to the coffee crop, and the benefits in margin are not solely the function of lean, mean operations. With that in mind, the problem of revenues rises to the fore. Third quarter revenue guidance came in below analyst expectations.
Conclusion
The deal with Starbucks is great news for Green Mountain and Starbucks. For the next five years, Keurig owners can enjoy Starbucks coffee, and now will have Seattle’s Best and Teavana choices. Starbucks is not abandoning its own single-serve ambitions, for now, and is simply being omnipresent. Coinstar is a part of this as well, and the company has been innovating new kiosks to compliment its successful Redbox and coin kiosks. I like Starbucks and Coinstar for their overall strategies, and Starbucks plans to expand its product offerings abroad. The long-term outlook for Green Mountain concerns me, and the recent rise makes me think that it is best to avoid the stock.
Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article More than Enough Coffee to Go Around originally appeared on Fool.com.
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