Shares of Keurig Green Mountain soared by more than 20 percent in after-hours trading after the specialty coffee maker reported better-than-expected fourth-quarter earnings results on Wednesday. Investors shouldn't get too wired from the caffeine rush.
In fact, it's setting up to be a pretty frigid holiday season for the maker of single-serve coffee makers, which is betting on its new "Keurig Kold" cold beverage machine to thaw out sales.
Fourth-quarter earnings per share of $0.85 cleared past the $0.71 analyst estimate. The company also tossed in a 13 percent dividend increase.
But its revenue fell by 13.3 percent from the year before, marking a second consecutive quarterly revenue drop, and its net income plunged by 33 percent. The company has lost about a third of its value in just under a year.
CEO Brian Kelley promised to revive sales when he joined in 2012, but his plans have come up short. Competition from knockoff devices has increased, while Keurig's own "Keurig 2.0," introduced last holiday season, fell flat. The company alienated customers who complained they could no longer use knockoffs and other non-Keurig branded cartridges with the machine.
What's more, because of knockoff competition and flagging sales, Keurig has lost possibly its most powerful asset of all: The pricing leverage it had on licensing deals with coffee roasters and retail and restaurant chains. Stifel estimates this has already led to price cuts of up to 38 percent on its brewers and up to 21 percent on its K-cups.
Now the company is betting big on Keurig Kold, a soda-and-cocktail-mixer machine it partnered with Coca Cola to create, just as Americans are cutting back on soda. Anyone following SodaStream's shift away from soda and toward sparkling water has an idea where this story is heading. Analysts have panned the Keurig Kold's hefty price tag of $280 to $370 for the machine and around $1 per drink, which can be more expensive than just buying a bottle of the real thing.
There's no doubt this will be a critical holiday season for the company. And it's unlikely a new soda machine can bring Keurig in from the cold.
Update: This story has been updated to clarify the description of the Keurig Kold.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Shelly Banjo in New York at email@example.com
To contact the editor responsible for this story:
Mark Gongloff at firstname.lastname@example.org