Coffee and Cola Takes The Share Prices Higher In 2014

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Feb 03, 2015
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The year 2014 saw many super hits in the stock market. Keurig Green Mountain Inc. (GMCR, Financial) is one of them. This company has been the undisputed leader as the single cup coffee roaster machine in the world today. The share prices of Keurig Green Mountain climbed up by 77% during 2014. The following trend shows the share price trend for 2014:

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The returns that the share prices of Keurig Green Mountain yielded during 2014 are evident from the chart below:

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What made share prices of Keuring Green Mountain surge during 2014? Read on more to understand about this.

Partnership with Kraft Foods

Keuring GreenMountain had some of the industry’s biggest names as its licensed partners. During 2014, its partneship with Kraft Foods (KRFT, Financial) was quite healthy as it signed a multiyear deal with them. Through this deal, Keuring Green Mountain not only got the right to sell and market food products of Kraft on its stores but also got to distribute McCafe products that Kraft had exclusive rights to, when it purchased these rights from McDonald’s (MCD, Financial) during 2013. The year also saw Keuring partner with Starbucks (SBUX, Financial) as it included beverages of Starbucks in its K-Cup Fold. All of these contributed to the coffee machine manufacturer’s monopoly position in the single cup brewing section.

The Coke deal

Coca Cola (KO, Financial), was losing out its customer base in the carbonated beverage segment due to drop in demands; hence it was looking to diversify its nature of business into other beverages. During February 2014, it announced that it would take a 10% stake in Keuring, which increased to 16% during the middle of the year. Coca Cola’s stake in Keuring’s cold beverage home system resulted in a mutually beneficial position for both the parties. The former could explore more avenues and the latter’s share prices saw an instant surge once this deal was finalised. This deal saw Keuring’s shares climb up by 77%, its best performance in a decade.

What to look forward to in 2015

During the fag end of 2014, Keuring was involved in a crisis, where it had to recall close to 7million brewing systems from the stores because of continuous complaints from customers about leakages of hot water and injuries due to burns. Keuring reacted immediately by announcing a free repair kit for its customers; however the negative impact of recalling so many brewing systems still haunts the company. Customers have begun to get doubts about the quality of Keuring’s products and hence sales figures might come down marginally by 2015.

The huge impact due to the investment from Coca Cola will fade off in 2015 and share prices will begin to show some stability. As seen in the first chart above, share prices have started to normalise after November 2014 and investors must be prepared to see this stability and must understand that the 77% increase in share prices is just a one-off effect and will not happen year after year.

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One positive aspect for Keuring in 2015 is that it is all set to launch its Cold platform during fall. This will bring some increases in share prices and offset the stability created after the Coca cola effect. In its cold platform, it is all set to include the beverages from Dr. Pepper Snapple’s (DPS, Financial) as well, as per its annoucement in January, which will bring lots of positive impact for Keuring during this year. The following chart shows the PE ratio of companies like Keuring, Coca Cola, Dr. Pepper Snapple’s, Starbucks, Kraft Foods and Soda Stream International (SODA, Financial). This shows that Keuring is far ahead of its competitors in terms of valuation.

Conclusion

Keuring Green Mountain Inc. will step into 2015 with stability as its key focus area. Hence investors should look forward to a quieter year when compared to last year. With lots of initiatives coming up in 2015, shareholders and investors can gear up for another interesting year that is full of growth prospects and where share prices will not receive any major boosts or letdowns.