Keurig to cut workforce after weak quarterly results

In early trading on Thursday, shares of Netflix (NFLX) topped the list of the day’s best performing components of the Nasdaq 100 index, trading up 3.5%.

The change in our thinking, however, revolves around the risk of margin erosion going forward, given GMCR’s already healthy gross margins of 45-50% in K-cups and EBIT margins of ~18.5% on a total company basis. Keurig’s stock price has fallen more than 43% year-to-date.

The third quarter saw a decline in net sales by 5% from the previous year, to $970m due to a fall in brewer and pod sales.

Dow Jones reported Wednesday that Keurig Green Mountain Inc. would cut its workforce as part of a productivity program that would save $300 million. We still believe that (1) GMCR can grow the installed base on Hot, (2) margins should stabilize longer-term, and (3) Kold should provide incremental sales and profit over time (as reflected in our 18% EPS growth in FY17).

Analysts were expecting adjusted earnings of $0.79 per share and revenue of $1.04 billion, according to Capital IQ data. That’s down from $155.2 million, or 94 cents a share, in the year-ago quarter.

On a different note, The Company has disclosed insider buying and selling activities to the Securities Exchange, Steele Robert Allan, director of Keurig Green Mountain, Inc., executed a transaction worth $221,900 on May 20, 2015. At least four research firms issued downgrades of its shares this morning.

Keurig Green Mountain, Inc., formerly Green Mountain Coffee Roasters, Inc., is a specialty coffee and coffeemaker businesses in the United States and Canada. Green Mountain Coffee Roasters Inc.’s stock is down -45.44% in the past 200 days.

Looking forward, Keurig hopes that its new Keurig Kold brewer will make a splash in the market after its launch, but for now, it expects earnings declines for fiscal 2015 in the low double-digit percentage range, and that’s far worse than most investors had foreseen. Additionally, the company’s valuation is now well below the average of its peers and new brewers it plans to introduce during the holiday season could improve its competitive positioning, said Anderson, who kept an Outperform rating on the shares. The Company offers traditional whole bean and ground coffee in other package types including cans, fractional packages and totes. The Organization distributes its goods in two channels: at-home (AH) and away-from-home (AFH).