What's happening: Shares of Keurig Green Mountain were down 29% as of 11:20 a.m. EDT Thursday morning following the home-beverage system maker's fiscal-third-quarter financial report Wednesday afternoon. The company saw sales fall 5%, and although adjusted earnings beat investor expectations by a penny per share, Keurig once again cut its guidance for the full 2015 fiscal year amid particular weakness in sales of its brewers and accessories.
Why it's happening: Keurig gets most of its sales from coffee pods, and revenue declines in that arena were relatively limited at just 1%. Yet the home coffee-brewer manufacturer's growth relies on a constant flow of new users buying its hardware systems. High levels of brewer inventory at retail locations held back the number of systems Keurig could sell to its retailer partners, and in turn, promotional efforts to try to increase sales volumes resulted in lower prices and led customers to tend toward buying less profitable models. A 22% plunge in accessories sales also contributed to downbeat results.
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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. With Keurig also seeing potential weakness extend into fiscal 2016 due to challenging coffee price trends and higher overhead costs related to product launches, shareholders worry that the difficulties that the coffee giant is going through right now show few signs of dissipating anytime soon. Even with a new $1 billion stock buyback authorization and cost-cutting measures that could include layoffs of 5% of its workforce, Keurig Green Mountain has investors nervous about whether it can regain its former growth-stock glory.
The article Why Keurig Green Mountain Stock Plunged 29% This Morning originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Keurig Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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