Keurig shares dive on drop in coffee machine, pod sales and planned job cuts

Markets Associated Press

Shares of Keurig Green Mountain Inc. plunged more than 26 percent Thursday following disappointing quarterly sales that reflected a downturn in coffee machine sales and increased competition in the office market.

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The maker of single-serve coffee brewing systems also said it would cut about 330 jobs, or 5 percent of its staff, to reduce costs. It currently employs about 6.600 employees.

The Waterbury, Vermont-based company makes the bulk of its profit from the sale of K-cups, which declined in conjunction with the coffee machines. The pods faced competitive pressure after several patents expired in 2012 and unlicensed, cheaper versions hit the market.

Keurig introduced new machines in 2014 that would only accept K-cups with new technology, but rivals have been able to overcome that, such as a "Freedom Clip" made by the Rogers Family Co.

In its most recent quarter overall product sales fell 5 percent. Pods made up the overwhelming majority of sales, with $815 million, marking a 1 percent drop.

"While we are not pleased with our revenue growth, we delivered earnings at the high end of our previous guidance," President and CEO Brian Kelley said in a statement. "We are taking decisive actions to adapt and compete more effectively in today's rapidly-evolving, dynamic marketplace."

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The company's profit beat Wall Street's expectations for the quarter even though it fell 27 percent to $113.6 million, or 73 cents per share. But its revenue results missed estimates.

Cannacord analyst Scott Van Winkle said the company had managed to recover market share for in-home use of its systems through branded and private label deals, but the workplace market has faced steeper competition. It is only 20 percent of the company's volume, but it is highly profitable.

"Thus there is more to lose if the competitive pressures intensify, and we suspect that is the path they are taking given the magnitude of the impact this quarter," Van Winkle said, in a note to investors.

Keurig also lowered its earnings-per-share and revenue projections for the current fiscal year and said its adjusted earnings per share will shrink in the first quarter of fiscal 2016 compared to the same quarter in fiscal 2015.

The company expects to take $30 million to $35 million in pretax charges associated with the job cuts.

Keurig is also spending up to $100 million on its cold-drink system, called Kold. That will let people make sodas, sports drinks and other beverages with the touch of a button. It will compete with SodaStream International Ltd.'s carbonization systems, though that company has seen a downturn in sales.

The stock fell $19.75, or 26.4 percent, to $55.23 in afternoon trading. Its shares are down 53 percent over the past year.