Keurig Green Mountain (GMCR.DL) shares were up nearly 20% last week following Wednesday's second-quarter report. The company started the year with a name change and a deal with Coca-Cola (KO -0.63%) that could crush SodaStream (SODA). Did the earnings report bring more good news?
Source: Keurig Green Mountain
I mentioned in the second-quarter preview that most of Keurig's business comes from the sale of K-Cups, or pods, and changes in this segment give the quickest view of the company's current health. Segment sales have declined since the pods fell off-patent in late-2012 as lower-cost alternatives came to market. But Keurig has plans to keep that loss from continuing.
Did pod sales drop again in the second quarter?
Pod sales rebound, but there's more to the story
Keurig Green Mountain reported second-quarter revenue of $1.1 billion, and 81% of that total came from pod sales. Pods only accounted for 67% of first-quarter revenue, so the dependency has grown. But did the growth rate for the segment also improve?
Source: Company filings
Second-quarter pod or pack sales were up 13% year over year to $898 million. But while sales growth trumps sales losses, the growth rate of Keurig's packs segment has fallen sharply in the past year. Pod sales growth fell over the course of 2012 due to simple deceleration, but the number has since plummeted because of the patent expiry.
So why did the second quarter feature the first growth-rate increase in six quarters?
Partners, partners, and more partners
Keurig tends to announce new partnerships in conjunction with quarterly reports, and the second quarter came with an expansion of Green Mountain's deal with J.M. Smucker to develop pods for the next generation of brewing machines. The deal wasn't as notable as the Coca-Cola partnership in the first quarter, which gave the beverage maker a 10% stake in Keurig. But both continue to show that beverage companies want to play nice with Keurig.
And there's good reason companies want to cooperate with Keurig. The company plans to launch future brewers with technologies that will block unlicensed K-Cups. Meaning, the pods from companies without Keurig Green Mountain partnerships will no longer work.
Keurig is also gearing up for next year's launch of the Keurig Cold beverage maker. The Cold will ramp up pod sales since Keurig will again have exclusivity on a type of pack. And Keurig's early, notable partnership with Coca-Cola should give SodaStream a run for its money. SodaStream has a Kraft Foods partnership that includes Kool-Aid, Country Time, and Crystal Light products. But the company only offers off-brand soda syrups for its carbonated-beverage devices.
Partners will continue to join or expand deals with Keurig as the new brewers come closer to release. But pods sales growth might not reach their early 2012 heights -- unless the Cold proves wildly popular.
Foolish final thoughts
Keurig's second-quarter pod sales showed a slight recovery. But keep an eye on future releases to see if the number can keep improving before the new brewers hit store shelves.
