Keurig (NASDAQ:GMCR) investors had a wild 2015. The company's stock spent much of the year in a veritable freefall before it was announced that JAB Holdings had made a deal to take the coffee company private at $92 a share.
What: The vast majority of Keurig's revenue comes from K-Cup sales ($3.64 billion of its fiscal year 2015 total of $4.5 billion) and the past year brought a backlash against the disposable coffee pods. Sales for K-cups (and other portion packs) were basically flat, rising 1% for the the year due to increased prices, but signs for the future are ominous due to plummeting brewer sales (down 23%).
Fears that environmental concerns might eventually cause people to abandon single-serve coffee in favor of brewing pots (which are much cheaper on a per-cup basis) in part saw the company spend most of the year trading well below its 2015 opening price of $132.81. The stock actually hit a 2015 low close of $40.13 on Nov. 17, before it rocketed back up to $88.89 after the deal was announced on Dec. 7, according to S&P Capital IQ data.
Eventually, the stock closed the year at $89.98, a 32% drop from where it began 2015, but well above its lowest trading price for the year.
So what: Had the buyout not occurred, Keurig was in trouble. The company not only faced potential declining K-cup sales, it has had major trouble establishing a second product line. Its frothed-milk beverage makers struck out as did its full carafe machines and its 2.0 K-cup brewer were met with some negative reaction because digital rights management made them not able to use unlicensed pods. Add in the fact that initial sales for the Keurig KOLD, a single-serve cold beverage brewer created in partnership with Coca-Cola (NYSE:KO), look to be bleak and there were strong signs that the stock was not going to make a quick recovery.
Now what: While Keurig was underwhelming as a stock, it's still a solid company. K-cups may have peaked or they may be in slight decline, but it seems unlikely that people are going to abandon them anytime soon. While the KOLD has not gotten off to a hot start, Keurig has been taking a slow build approach to it.
In the long run the fact that the cold-beverage machine is the only way to make Coca-Cola products at home may ultimately lead people to buy it. Even if the company can establish a small base of regular users selling pods for the various sodas, sparkling waters, and other Coca-Cola-brands KOLD can make it could become a serious revenue producer.
Assuming the deal goes through and Keurig becomes a private company then it may be for the best. Shareholders will have recovered some of the value lost during the year and the company itself will be freed from the need to generate new hits. Instead it will be able to focus on leveraging its K-cup business with the rest of JAB's coffee-based holdings while slowly building KOLD, and other potential new products.
Daniel Kline has no position in any stocks mentioned. He uses a Keurig K-cup machine nearly every day. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $43 calls on Coca-Cola, and short January 2016 $37 puts on Coca-Cola. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.