Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is the Coca-Cola Partnership With Green Mountain Truly a Game Changer?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

In the wake of the announcement that Coca-Cola (NYSE: KO  ) will partner with Green Mountain Coffee Roasters (NASDAQ: GMCR  ) to create the Keurig Cold at-home beverage system, the financial media is abuzz with excitement. None other than Jim Cramer called the partnership a "game changer" on CNBC. With shares of Green Mountain having soared since the day of the announcement, it's easy to get swept away with a sense of euphoria. At the same time, investors may want to take a breath before getting overly excited.

First, the details
Last week, Coca-Cola revealed it would invest $1.2 billion to acquire a 10% minority stake in Green Mountain. Together, the two companies will prepare the launch of the Keurig Cold beverage platform as part of a 10-year agreement. The deal creates obvious synergies, as Coca-Cola will have the potential to get its products to customers through an innovative new system. And Green Mountain now has the ability to tap into Coca-Cola's world-class brand and massive distribution capabilities.

The deal is basically a no-lose scenario for Coca-Cola. It could strike gold if the technology is universally adopted, and considering shipment volumes of sparkling beverages are flatlining in the United States, it's certainly an idea worth pursuing. Plus, Coca-Cola's $1.2 billion investment is essentially a drop in the bucket for the company, as it raked in more than $6.8 billion in net profit over the first three quarters of 2013 alone.

The Keurig Cold beverage system has the potential to become a premium cold-beverage platform and reenergize growth in what appears to be a stale sparkling-beverage industry, especially in the United States. Going forward, Coca-Cola and Green Mountain hope to provide customers around the world with a convenient way to prepare their favorite cold beverages at home.

The partnership is clearly a shot at SodaStream (NASDAQ: SODA  ) , which is struggling to regain its own momentum. Management expects full-year revenue to hit $562 million, representing 29% growth. While that sounds impressive on the surface, it's about half the pace of growth from the prior year. SodaStream booked 51% revenue growth in the previous year, meaning investors should be moderately concerned about the slowing pace of growth for at-home soda machines.

Green Mountain's momentum set to skyrocket?
Green Mountain had some positive momentum after reporting strong results in fiscal 2013 as well as the first quarter of fiscal 2014. Now the company hopes to keep that going with its Coca-Cola partnership. Green Mountain generated 16% sales growth in 2013 along with adjusted earnings growth of 45%. Even more impressively, Green Mountain's free cash flow was nearly eight times more than last year, rising to $603 million.

Green Mountain followed up this performance with 26% adjusted earnings growth in the fiscal first quarter. This was driven by the fact that Green Mountain sold 5.1 million Keurig brewers during the holiday period, which set a company record. However, it's worth noting that Green Mountain's sales grew just 4% during the first quarter and were widely seen as a disappointment. That's why its partnership with Coca-Cola is so important to keep its future growth trajectory intact.

Be wary of sky-high expectations
Of course, it's worth noting that the success of the Keurig Cold at-home beverage system is far from guaranteed. Investors can take their cues from SodaStream, whose growth has slowed. There seems to be a distinct difference between the traditional Keurig coffee brewers and the cold-beverage system. While customers have widely accepted brewing their own coffee at the push of a button, their attitudes toward making their own cold sparkling beverages remains to be seen.

Plus, investors should note that Coca-Cola's investment in Green Mountain is at an average price of $75 per share. With Green Mountain's stock skyrocketing to more than $100 per share immediately after the announcement, expectations are already sky-high.

Sky-high returns could be yours if you heed Buffett's advice
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2832576, ~/Articles/ArticleHandler.aspx, 9/4/2015 9:40:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated 24 minutes ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 3:59 PM
GMCR $58.38 Up +0.95 +1.65%
Keurig Green Mount… CAPS Rating: **
KO $38.52 Down -0.64 -1.63%
Coca-Cola CAPS Rating: ****
SODA $14.48 Down -0.11 -0.75%
SodaStream CAPS Rating: **