Green Mountain Coffee Roasters (GMCR.DL) has been on fire. The company's earnings and revenue growth aside, it has struck a megadeal with beverage giant Coca-Cola (KO -0.46%). The company's Keurig customer base is on the rise, and Green Mountain is now looking to address the cold-beverage market with more innovative consumer products.

Strong metrics
Green Mountain sold a record 5.1 million brewers during the holiday season, which consisted of 4.9 million brewers and 200,000 machines from its other partners. The company's growth strategy has been to put more Keurig machines into more homes and offices and earn incremental recurring revenue from K-cup packs. In the last quarter, 67% of its total revenue came from portion packs. This trend is likely to continue, as more brewers will lead to higher portion-pack sales in spite of rising competition from private-label products.

The company's top line in the last quarter increased 4% to $1.4 billion and earnings per share increased 30%. Green Mountain's gross margin increased 220 basis points to 33.5% during the holiday quarter, mostly due to favorable coffee costs. The U.S. business grew 5%, but the Canadian segment declined 6% due to currency headwinds. 

K-Cup volumes should grow substantially
The company's K-Cup sales grew 8% during the holiday quarter. Results were driven by a 12% increase in unit sales and a 2% decline in pricing due to higher competition from private-label manufacturers. Brewer sales were flat year over year; but the company saw a 4% increase in brewer sales volume, which was offset by a 2% decrease in pricing.

The company is planning to ramp up its presence in the away-from-home market in the U.S. and abroad. It is trying to penetrate much more broadly food-service locations, educational institutes, sports stadiums, office locations, etc. in the U.S. and Canada, and is on track to address the U.K. away-from-home market in next quarter.

More than 18 million households have a Keurig brewer, and this installed customer base will continue to demand more K-Cups. And the Keurig 2.0 system will be able to brew both single-serve and big pots of coffee; this will drive up the attachment rate and lead to higher margins for the company.

Coca-Cola deal is significant
Coca-Cola signed a 10-year deal to collaborate with Green Mountain for the development of the Keurig Cold beverage platform. And Coca-Cola bought a 10% minority stake in Green Mountain for $1.2 billion. Green Mountain and Coca-Cola will collaborate and bring Coca-Cola's global brand portfolio to the at-home Keurig Cold system. And since Coca-Cola now owns a sizable chunk of Green Mountain, the Keurig maker will be the exclusive partner for Coca-Cola. It will also explore more strategic opportunities to team up in the future to develop other Keurig-based products.

Coca-Cola's core product sales have stagnated somewhat, but the beverage maker's investment in Green Mountain is a big home run for both players. Coca-Cola made a great, strategic, and financial investment in Green Mountain. The deal has already been a big win for both companies and creates a powerhouse combination in the global beverage market.

In 2013, Green Mountain hinted at an effort to diversify away from its coffee and hot drinks businesses and into the cold-beverages market. Using Coca-Cola's global reach and household brands, this represents a great new channel to penetrate. More customization in beverage choices will help the company to penetrate more households and also form partnerships with other major cold-beverage makers. Keurig Cold is expected to hit the market in 2015 and will be an open-architecture platform like the current Keurig hot system.

Green Mountain will be utilizing the cash proceeds from Coca-Cola to fund share repurchases under its existing authorization of $1.1 billion. It will reduce dilution as the company will be issuing 16.7 million new shares to Coca-Cola for the 10% stake.

Going forward
Green Mountain will continue to be a leader in the specialty-coffee segment with its large installed base of coffee makers in place. And the company is making progress in converting unlicensed sellers of K-Cups into licensed sellers under the Green Mountain umbrella. The licensed brands under Green Mountain tend to have a higher repurchase rate. Unlicensed packs make up 14% of the Keurig system. In addition, the company will be launching a new line of Keurig 2.0 hot brewers with its existing 49 owned and partner brands.

The Keurig 2.0 is very significant because it can brew single serve as well as pots of coffee; so it should see widespread customer adoption. The company's partnership with the world's largest beverage maker is a huge win. Coca-Cola sells 1.9 billion servings a day to consumers in more than 200 countries with the 500-plus brands in its beverage portfolio.

Green Mountain's reach and distribution will receive a big boost with the help of its new minority owner, Coca-Cola. The vote of confidence from Coca-Cola puts to bed a number of controversial issues surrounding Green Mountain including channel-stuffing and accounting irregularities and will transform the company into a growing beverage company with a global footprint.