By Spencer Jakab
Hackers have been the bane of banks and retailers lately, not
beverage companies like Keurig Green Mountain Inc.
But tinkerers have posted popular videos online about how to get
around features in its new system, Keurig 2.0, that lock out
unlicensed coffee pods. And a major competitor, Treehouse Foods
Inc., claims it will soon circumvent the technology. That matters
quite a bit because, in a legal filing challenging Keurig's
technology, Treehouse notes that licensed pods cost 15% to 25% more
than unlicensed ones.
Sales of Keurig's new brewers, which began during the company's
fiscal fourth quarter ended in September, shouldn't have a
meaningful impact on earnings: Margins on coffee are far higher
than on hardware. But the fact that more companies have signed on
as official Keurig partners--unlike Treehouse--is significant.
Analysts polled by FactSet think revenue rose by slightly more
than 7% in the fiscal year. Earnings per share for the fiscal year
are expected to rise to $3.63 from $3.16.
A rush of new partners such as Kraft Foods Group Inc. and new
types of beverages have underpinned a 150% gain in Keurig's stock
over the past year. The shares now trade at around 37 times forward
earnings.
Though its original K-Cup patent expired in 2012, many new
partners have likely been swayed not only by Keurig's dominance in
home-served coffee but also the tighter grip on sales through its
new system.
Still, revenue growth has slipped sharply from the caffeinated
pace of a few years ago. As with its initial success, Keurig is
betting on technology to win more business.
The 2.0 system also will allow larger serving sizes, a move that
could further expand the company's share of home coffee brewing and
get those already using Keurig to do so exclusively. Fans also cite
its coming cold-serve system that attracted a large equity
investment from Coca-Cola Co.
Unfortunately for Keurig, gaining significant additional market
share in home brewing and having anywhere near the same success in
cold beverages after others have tried and failed seem a tall
order. Things look sweet at the moment, but a high valuation risks
a bitter aftertaste.
Access Investor Kit for Keurig Green Mountain, Inc.
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http://www.companyspotlight.com/partner?cp_code=P479&isin=US49271M1009
Access Investor Kit for TreeHouse Foods, Inc.
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http://www.companyspotlight.com/partner?cp_code=P479&isin=US89469A1043
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