Coca-Cola, Green Mountain Coffee Deal Scalds SodaStream

NEW YORK (TheStreet) -- The Coca-Cola Company (KO) is partnering with Green Mountain Coffee Roasters (GMCR) in a deal that the world's largest beverage maker intends to use to develop an at-home cold drinks system. It's a small step towards beverage supremacy, and left SodaStream (SODA) running scared.

Coca-cola has long had something of a cold war with SodaStream, the Israeli developer of a home appliance that carbonates water and cordials, and has held a near-monopoly in the do-it-yourself drinks niche for some time. Coca-Cola is keen to knock them off their pedestal. 

In extended trading, SodaStream shares had plummeted 9.2% to $32.49 while Green Mountain Coffee surged 38% to $111.89. Coca-Cola edged 1% higher to $37.99.

Coca-Cola intends to use its global distribution and marketing network to introduce Green Mountain's Keuring cold beverages system.

"This global relationship combines The Coca-Cola Company's unparalleled brand, distribution and marketing strengths with GMCR's innovative technology and beverage system expertise," said GMCR CEO Brian P. Kelley in a statement.

"By pairing The Coca-Cola Company's brand leadership and global footprint with GMCR's innovative technology, together we will be able to capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry," added Coca-Cola CEO Muhtar Kent.

Green Mountain will act as exclusive partner for the development and sale of Coca-Cola Company-branded pod-based cold beverages, designed to be used at home and compatible with Green Mountain's to-be-released system. The partnership will not be limited to this project; the companies said they will explore future opportunities to collaborate on the Keurig platform.

As part of the agreement, the relationship will extend over 10 years and will see Coca-Cola purchase 16.6 million shares of Green Mountain for $1.25 billion. Green Mountain intends to use funds raised to finance a share repurchase program to reduce dilution to be executed under its existing $1.1 billion repurchase authorization.

The investment is expected to close in March 2014, subject to regulatory approval. GMCR's Keurig Cold beverage system is currently under development with an expected on-sale date in fiscal 2015.

Bank of America served as financial adviser to Green Mountain and Baker & McKenzie acted as legal adviser to the deal.

Must Read: Green Mountain Coffee Roasters Reports First-Quarter Results

TheStreet Ratings team rates COCA-COLA CO as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate COCA-COLA CO (KO) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity, good cash flow from operations, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • COCA-COLA CO has improved earnings per share by 8.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, COCA-COLA CO increased its bottom line by earning $1.96 versus $1.85 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.96).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Beverages industry and the overall market, COCA-COLA CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has slightly increased to $3,756.00 million or 2.56% when compared to the same quarter last year. In addition, COCA-COLA CO has also modestly surpassed the industry average cash flow growth rate of -6.20%.
  • The gross profit margin for COCA-COLA CO is rather high; currently it is at 64.29%. Regardless of KO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KO's net profit margin of 20.34% compares favorably to the industry average.
  • KO, with its decline in revenue, slightly underperformed the industry average of 1.8%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

TheStreet Ratings team rates GREEN MTN COFFEE ROASTERS as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate GREEN MTN COFFEE ROASTERS (GMCR) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

TheStreet Ratings team rates SODASTREAM INTERNATIONAL LTD as a Hold with a ratings score of C+. The team has this to say about their recommendation:

"We rate SODASTREAM INTERNATIONAL LTD (SODA) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SODA's revenue growth has slightly outpaced the industry average of 26.5%. Since the same quarter one year prior, revenues rose by 28.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • SODA's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.02, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has increased to $4.95 million or 13.75% when compared to the same quarter last year. Despite an increase in cash flow, SODASTREAM INTERNATIONAL LTD's average is still marginally south of the industry average growth rate of 22.46%.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Household Durables industry average. The net income has decreased by 2.2% when compared to the same quarter one year ago, dropping from $16.77 million to $16.40 million.
  • Looking at the price performance of SODA's shares over the past 12 months, there is not much good news to report: the stock is down 26.99%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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