Investor Alert: Keurig Green Mountain, Inc. and The J. M. Smucker Company Look Poised to Keep Growing

Source: Keurig Green Mountain

Two great pieces of news helped push shares of Keurig Green Mountain (NASDAQ: GMCR  ) 13% higher on May 8. This strong share-price appreciation was followed by another 4% jump on May 9. In addition to reporting revenue and earnings results that surpassed analyst expectations, the business announced an expanded agreement with J.M. Smucker (NYSE: SJM  ) that has investors optimistic about the company's future.

Keurig keeps pumping out strong results
For the quarter, Keurig reported revenue of $1.1 billion. Although this is just 10% higher than the $1 billion management reported for the second quarter last year, the performance outpaced analyst estimates by a modest $50 million. The main driver behind the company's better-than-anticipated results was the 13% jump in sales it experienced in its signature portion packs, which rose from $794 million to $898.2 million.

From a profitability perspective, the coffee company did even better. For the quarter, management reported earnings per share of $1.03, 8% higher than the $0.95 analysts wanted to see and 18% more than the $0.87 management reported for the same quarter a year earlier.

Source: Keurig

In addition to benefiting from higher sales, Keurig saw its selling and operating expenses drop from 12.4% of sales to 11.3%, while its general and administrative expenses declined from 7.8% of sales to 6.5%. Both of these improvements stemmed from "disciplined cost controls" instituted by management and higher margins.

The company's performance reinforces the view that Keurig is a pretty strong growth engine. Over the past three years, its sales have grown 64% from $2.6 billion to almost $4.4 billion, while its net income has grown 142% from $199.5 million to $483.2 million.

Source: Smucker

Keurig's growth has major implications for Smucker
On top of surprising investors with strong earnings and revenue metrics, Keurig announced that it would be expanding its agreement with Smucker to sell Folgers and Millstone brands (among others) in its new lineup of brewers. Although there's no telling how much this expanded relationship will contribute to Keurig's top and bottom lines, it's hard to imagine a scenario where the company does not benefit from it.

Smucker, on the other hand, has a lot of upside from this transaction. Over the past three years, Smucker's revenue has risen 22% from $4.8 billion to $5.9 billion, while its net income rose more than 13% from $479.5 million to $544.2 million. Even though the company received just a small part of its sales from K-Cups in 2013, these operations have been among the company's fastest growing.

Over the past three years, Smucker saw revenue from K-Cups soar 129% from $125.2 million to $286.2 million. Put another way, the company received 4.9% of revenue from its dealings with Keurig in 2013, up from 2.6% two years earlier. So long as Keurig's brewing system and coffee brands remain popular with consumers, it's probable that Smucker will see even more of its sales come from K-Cup sales.

Foolish takeaway
Moving forward, the future looks bright for Keurig. Even after posting strong performance during the past few years, the company was able to beat analyst forecasts this past quarter. In part, this growth has been the result of management's ability to ink contracts like the one it just expanded with Smucker. By collaborating with other coffee companies, Keurig is allowing all parties to grab a piece of its growing pie.

While the future is uncertain, it's probable that the business will be able to continue this trend so long as its brewers and K-Cup packs appeal to consumers. Absent fraud or financial mismanagement, this will likely convert to more money in the pockets of the business' partners and investors.

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