Brenner says, “The sales data is impressive.” According to his research, K-Cup shipments increased 80% in Q4 and 75% for the year, with revenues from the product up 115%. The introduction of Folgers and Millstone-branded K-Cups accounted for about 6% of the volume increase in Q4. In addition, there probably was inventory stocking by retailers ahead of an announced October price increase.
The bottom line here is that consumer demand remains very strong, while the margin pressure is short term. Keurig household penetration is 6%, up 33% in three months. Brenner states that Sales and earnings growth should remain strong over the next couple of years, with potential other catalysts, such as additional licensees and international expansion, still to come.
“We would use the price weakness as a buying opportunity.”
Making Their Case: The Bear
Mark Astrachan, Analyst, Stifel Nicolaus
Astrachan maintains a Sell rating on Green Mountain Coffee Roasters because he “continues to believe the rate of household brewer penetration has peaked and continued declining attachment rates could worsen resulting in lower peak earnings than are anticipated by GMCR shares.”
He says that although sales growth for GMCR’s fourth quarter of 2010 was ahead of the company’s prior expectation, its margins were weaker than expected. In addition, he is “concerned [about] the long-term outlook for K-Cup shipments, the main earnings driver of the business, is eroding along with margins.”
Green Mountain Coffee Roasters is the company up for debate on today’s Stock Brawl at 3:30pm ET on CNBC's "Closing Bell.”
Crystal Lau contributed to this article.
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