Full steam ahead for Keurig

by Monica Watrous    View Me on Google+
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WATERBURY, VT. — The stage is set for Keurig 2.0.

Keurig Green Mountain, Inc. has begun the transition process for this year’s launch of its next-generation brewer, which dispenses both single-serve cups and full pots of coffee. In January, the company began converting licensed products to readable pods that are compatible with the new machines.

“We also are bringing other brands into the system, and we’re converting those in time as well,” said Brian Kelley, president and chief executive officer of Keurig, during a May 7 earnings call with financial analysts. “So, our consumers and customers, I will say this, are very enthusiastic about Keurig 2.0. We’re out there with consumer home use tests. We’ve shown it to every major customer. We’re going to have broad distribution. We’re going to have strong merchandising support behind this launch. It’s going to be a big launch for us.”

Still, the company anticipates hiccups with the launch, such as confusion over which portion packs work in which systems. Keurig said it is working with retailers to help separate the licensed brands from unlicensed products that are not compatible with Keurig 2.0.

“I think you’ll find the planning has been thorough; the planning has been disciplined; and we believe we’ll execute this well,” Mr. Kelley said. “We’re not perfect. We’ll have issues that we go through in any transition of this size.”

Another potential issue, he added, may relate to unlicensed brands that are not yet converted when the new brewer debuts.

“There will be brands that are unlicensed when we launch 2.0, but we’ve already made agreement to get them into the system, and we just didn’t have time to fully convert them,” Mr. Kelley said. “And that will occur, and that will happen, and we’ll work through that with each individual branded partner. That’s part of the transition.”

For the second quarter ended March 29, net income attributable to Keurig was $162,084,000, equal to $1.05 per share on the common stock, up more than 22% from $132,421,000, or 89c per share, in the prior-year period.

Net sales advanced 10% to $1,103,072,000 from $1,004,792,000.

Portion pack sales increased 13% to $898.2 million, and sales of brewers and accessories grew 9% to $137.6 million during the quarter, offsetting a 20% decline in sales of other products, which reflected a shift from traditional coffee package formats to single-serve options.

Keurig also announced an extended partnership with the J.M. Smucker Co. The companies have entered into a multi-year agreement to manufacture, market, distribute and portion-pack varieties of Smucker’s coffee brands, which include Folgers, Café Bustelo and Millstone brands. The agreement expands Smucker’s existing K-Cup pack offerings in multiple distribution channels as well as in new Keurig brewing systems.
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