More Growth for Green Mountain

Green Mountain Coffee Roasters (GMCR - Analyst Report) has reported double-digit revenue growth for the last 26 consecutive quarters, and, since the acquisition of Keurig, in 2006, the company has reported net sales growth of approximately more than 39% for 11 consecutive quarters.

In March 2009, the company acquired the Tully’s Coffee brand and wholesale business, from Tully’s Coffee Corporation. The acquisition is believed to be a good strategic addition to Green Mountain’s coffee roasting family, as Tully’s has a West Coast tradition of outstanding hand-crafted coffees and an established infrastructure in the wholesale business distributing coffee to over 5,000 supermarkets, as well as to office coffee service and food service distributors, located primarily in the Western and Midwestern U.S.

Green Mountain plans to benefit from synergies within its family of brands and the multi-channel distribution strategy to strengthen its leadership in the specialty coffee and in the single-serve brewing category. The acquisition supports Green Mountain’s plans to drive Keurig Single-Cup system awareness and marketplace penetration in North America. During the second quarter of 2009, Green Mountain posted a 148% increase in Keurig business. Moreover, during the first half of 2009, strong revolution has been noticed in the home coffee preparation from percolators to single cup brewing. In response, Green Mountain has started distributing Keurig’s gourmet single cup coffee brewers and patented K-Cup portion packs in more than 3,000 Wal-Mart stores.

In addition, owing the increasing popularity and growing demand for single cup brewing, Conair Corporation, entered into a distribution agreement with Green Mountain to develop market and sell single-cup coffeemakers, under the Cuisinart brand in the U.S. and Canada. Similarly, Jarden Corporation also entered into an agreement to jointly develop Mr. Coffee single cup coffeemakers. With these, it is believed that customers will have a varied choice of models and brands to choose from, as the number of coffeemakers utilizing Keurig’s technology expand.

Therefore, Green Mountain has created a niche for itself, wherein other competitors like Peet's Coffee & Tea (PEET - Analyst Report), Procter & Gamble (PG - Analyst Report) and Kraft Foods (KFT - Analyst Report) do not have any exposure. Currently, we have rated a Hold on Green Mountain due to its valuation and higher commodity costs, especially green coffee.