Master Blenders Quarterly Revenue Misses Analysts’ Estimates

D.E Master Blenders 1753 NV (DE), the coffee and tea company spun off by Sara Lee Corp. in June, reported first-quarter revenue that lagged analyst estimates as price increases in Germany led consumers to reduce purchases.

Revenue fell 1.5 percent to 645 million euros ($841 million) in the three months through September as volume dropped 2.7 percent, the Amsterdam-based company said today in a statement. Analysts had expected sales of 664 million euros. Prices boosted growth by 2 percent. The shares fell as much as 6.3 percent, the steepest intraday decline since Aug. 2.

The company said it cut Senseo prices in Germany by 8 percent, reversing price increases after finding they were “too aggressive.” That outweighed the introduction of new products in the quarter as Master Blenders has revamped its Senseo system with new packaging and flavors and introduced L’OR capsules that work in Nestle SA (NESN)’s Nespresso machines in Australia.

“Given the quantum of innovation in the quarter, a 2.7 percent volume decline can only be described as disappointing,” wrote Jeff Stent, an analyst at Exane BNP, who had expected volume growth of 2 percent.

The stock traded 4.8 percent lower at 9.33 euros as of 11:27 a.m. in Amsterdam. The shares have gained 12 percent since June 12, the first day they traded.

Keeps Targets

Master Blenders reiterated its guidance for the year, saying revenue will probably increase by 3 percent to 5 percent in the 12 months through June 2013, while its margin for earnings before interest and taxation will widen by as much as 2 percentage points from 12.3 percent in the past fiscal year. The company also expects “low single-digit” volume growth this year.

The maker of Douwe Egberts coffee started selling its Sarista single-serve machine that makes coffee from whole beans in the Netherlands this month. Chief Executive Officer Michiel Herkemij said the first indications of consumer interest have been “highly encouraging.”

Master Blenders said Oct. 11 that accounting irregularities in Brazil would reduce its net income by 14 million euros less than previously indicated. The irregularities involve uncollectible accounts receivable and incorrect recognition of sales, according to the company. The maker of Pickwick tea discovered the irregularities after the end of Sara Lee’s fiscal year as new management conducted an investigation of the accounts.

Brazil Shake-up

Master Blenders said Juan Carlos Dalto will become chief executive officer of Brazilian operations on Nov. 1. The company also plans to decide soon whether to publish its report into the irregularities.

Master Blenders has no plans for acquisitions, executives said on a conference call. The company also said it’s “optimistic” that it can turn around volume declines in western European markets.

Master Blenders said Oct. 19 that Joh. A. Benckiser, the investment firm run by Bart Becht, boosted its stake in the company to more than 15 percent from 12.2 percent.

“JAB is acting opportunistically and I wouldn’t be surprised to see more going on amid the weakness in the stock,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich.

JAB has previously indicated that it planned to remain a minority investor, though it has said it may increase its stake in Master Blenders. JAB bolstered its coffee holdings this year by agreeing to buy Peet’s Coffee & Tea Inc. (PEET) for about $1 billion.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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