Vermont’s Green Mountain Coffee Roasters announced an expanded partnership with Starbucks late Wednesday, signaling a desire to expand sales of Starbucks-brand coffee packs tailored for the Waterbury firm’s trademark Keurig brewers.
Since March 2011, when the two coffee powerhouses first partnered, Starbucks has shipped more than 850 million Starbucks coffee Keurig packs. A new five-year deal seeks to triple the number of Starbucks products destined for Keurig brewers.
The financial terms of the agreement were not made public. But Green Mountain Coffee Roasters’ CEO Brian Kelley told investors in a conference call that “the economics of the deal are very attractive for us and Starbucks.”
In a news release, Starbucks CEO Howard Schultz said the agreement affords the two firms a chance to leave their traditional North American marketplace and expand into international territory.
“We are looking forward to offering a greater variety of premium Starbucks coffee and Starbucks brands to consumers around the world,” said Kelley in a statement. In his call, he called the deal a “testament” to the strength of Starbucks and the Keurig brewing system.
Anton Brenner, a Roth Capital Partners analyst who follows GMCR, wrote in a May 9 research note that he expects the firm’s first forays into global markets to start within the next year.
Tripling the Starbucks brands tied to Green Mountain Coffee will “allow GMCR, which will take on additional partners, to quickly establish a foothold in selected international markets,” Brenner wrote.
In releasing its latest quarterly financial report, GMCR showed a 14 percent revenue increase over the comparable period last year, powered by sales of its disposable individual coffee packs, known as ‘single serve’ packs or K-cups. Net sales and income also showed double-digit percentage increases.
But the company also suffered a 9 percent decrease in sales of its Keurig brewer, earning about $13.4 million less than last year. It also downgraded its fiscal year 2013 outlook to net sales growth of 11 percent to 14 percent, from a previous forecast of 15 percent to 20 percent growth.
Declines in sales of its traditional bagged coffee and office coffee services caused the downgrade. The company expects that decline to continue as the industry shifts more solidly behind single-serve machines.
According to a company supplement, the firm expects there will be 16-17 million Keurig brewers used throughout the nation by September, in a market of about 118 million U.S. households.
The company also spent less capital on corporate growth compared to last year. It will outlay an estimated $275 million to $325 million in capital expansions this fiscal year, down from about $500 million in fiscal 2012. That’s partly driven by almost $120 million less spent on manufacturing and infrastructure.
In his call with investors and analysts, Kelley also indicated a desire to grow beyond the firm’s comfort zones of coffee served at home and in the workplace, by expanding more aggressively to restaurant chains.
GMCR stock rose over 25 percent in the course of Thursday’s trading, with Wednesday’s earning report coming after the close of the exchange.
Watch a CNBC video featuring the GMCR and Starbucks CEOs discussing the new partnership here.
