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Keurig Green Mountain Sales Declined in Fiscal 4Q15

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Sales fall 11%

Keurig Green Mountain (GMCR) reported fiscal 4Q15 net sales of $1.0 billion compared to $1.2 billion in fiscal 4Q14. The sales decline was within the range anticipated by the company during its third quarter announcement.

Sales fell by 11% excluding currency impacts. A further 2% reduction was added by the stronger dollar, and reported sales dropped by a total of 13%. The brewer and accessory sales showed a decrease of 32%, while pod sales fell 9%. The sales, however, beat the average consensus estimate of $1 billion.

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Analyzing product performance

A 20% decrease in brewer volumes, a ~10% decrease in product mix, and a ~1% decrease due to net price realization contributed to the decline in brewer sales. There was also a negative impact of ~1% because of foreign currency exchange rates.

A lower price for the K200 model and greater unit sales of the MINI brewer reduced the volume and brewer mix, ultimately causing sales to decline. Keurig introduced the K200 entry level 2.0 brewing system in the second half of 2015.

Pod sales fell 9% due to 4% lower volumes and a ~6% decrease in product mix. A ~2% increase due to net price realization partially compensated for the decline in volume and mix. It also included a negative impact of ~2% from foreign exchange.

The unfavorable impact of foreign exchange rates, the loss of a customer in the company’s away-from-home channel, and management’s decision to focus on and allocate resources to its pod business contributed to the decline of 20% in sales of other products.

New products launched

In a press release, Keurig management mentioned that the company will continue to manage its pod business as a portfolio, supporting both owned and licensed brands as well as those of its partners. Through its recent innovations in its owned brands, including Green Mountain Coffee Organic, Green Mountain Coffee Coffeehouse, and Laughing Man, the company is in the process of expanding retail distribution throughout fiscal 2016.

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Management also stated that they’re pleased with the launch of Keurig Kold and expect to see the product’s performance in fiscal 2016. The introduction of this product is likely to positively influence revenue growth by less than 1 percentage point. The company expects its income statement investment in Keurig Kold on a pretax basis to be around $125 million in fiscal 2016 compared to ~$100 million in fiscal 2015. It will depend on consumer adoption of the platform, channel mix, and pod manufacturing efficiencies.

Peer performance

Keurig’s competitors in the industry are Campbell Soup (CPB), ConAgra Foods (CAG), and Mead Johnson Nutrition (MJN). They reported gross margins of 36.2%, 25.1%, and 64.5%, respectively, for their last reported quarters. The Fidelity MSCI Consumer Staples ETF (FSTA) and the iShares Morningstar Large-Cap Growth ETF (JKE) invest 0.88% and 0.29% of their portfolios, respectively, in MJN stock as of November 19, 2015.

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