Keurig Green Mountain Is Beginning to Percolate
Updated with comments from Jim Cramer.
Keurig Green Mountain (GMCR) reported fourth-quarter fiscal 2015 results that surprised everybody. The stock jumped 18% -- and it can keep going.
Yesterday Keurig Green Mountain reported results that were 21 cents ahead of forecasts, and management raised guidance. Revenue was down 13% to $1.04 billion, about $10 million better than expected. For the year, the company had sales of $4.5 billion.
In the quarter, sales of brewers were down 32% to 1.9 million units. For the year, the company sold 9.2 million brewers, down 16% from last year.
The company ended the year by selling 10.5 billion pods. Pods were 80% of revenue.
While the results were not particularly good, they weren't as bad as Wall Street had been expecting. Management is still unable to stem the decline in brewer sales, but it seems the company is executing better than it has in the past, especially around cash flow management.
"When it reported a better-than-expected profit last night, superior cash flow, a 13% dividend boost and a continued sizable buyback, the stock flew," said TheStreet's Jim Cramer,creator of and contributor to Real Money. "Why not? Here's a quarter from a gang that couldn't shoot straight that really did deliver the piping-hot goods. And it comes at a time when we know people are going gaga for coffee, something that Starbucks (SBUX) - Get Report has been telling us for months on end."
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As Jim notes, the company announced a 13% hike in the dividend to $1.30 per share. Management has the board's authorization to repurchase up to $1.265 billion worth of stock.
With the stock down 64% year to date, the bears are pressing their luck. Sales should start to grow in fiscal 2016. Management indicated flat to low-single-digit sales growth next year.
But I think revenue can increase 3% next year and close to 10% the year after as the company puts its disastrous Kold beverage launch behind it.
As recently as 2013, Keurig was growing revenue 13% and net income 36%, so it is possible management can turn the company around. By stabilizing the business and by posting slightly better than flat revenue, Keurig can restore investor confidence in the company and the stock.
Just as a slightly better quarter drove the shares up 18%, a few better-than-expected quarters could power the stock to $75 over the next year. If I'm right, things will begin to percolate for Keurig Green Mountain investors.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.