Keurig Warns Currency to Hurt Full-Year Results

By Josh Beckerman 

Keurig Green Mountain Inc. said its December quarter included weaker-than-expected holiday sales and warned that results for the year ending in September will be hurt by foreign exchange rates.

Late in the holiday shopping season, Keurig voluntarily recalled more than seven million Mini Plus Brewing Systems because of reports that water can overheat and spray users, including 90 reports of burn-related injuries.

Keurig said retailer portion-pack inventory reductions also hurt sales. "We believe these factors are transitory," the company said.

The Waterbury, Vt.-based company also lowered full-year earnings and sales guidance.

Keurig projects growth in earnings excluding certain items such as acquisition-related amortization of mid-single digits, compared with a prior estimate of high-single digits to low-double digits. The outlook includes dilution related to investments by Coca-Cola Co. and Luigi Lavazza SpA.

Sales growth is now projected to range from mid-single digits to high-single digits, compared with a previous view of high-single digits to low-double digits.

The full-year view outlook includes an estimated currency "headwind" of 15 cents a share.

The stronger dollar has hurt overseas revenue at variety of American companies, with businesses including Apple Inc., Microsoft Corp., Pfizer Inc., McDonald's Corp., and Procter & Gamble Co. recently citing currency issues.

Keurig is trying to expand beyond its core business of coffee machines and single-serve K-cup packets, and has added partnerships with branded and private-label coffee sellers.

The company has been working on a cold beverage system in a deal with Coca-Cola Co., taking on market leader SodaStream International Ltd. The machine is "on track" to launch during the fall, the company said.

Last year, Keurig began selling its next-generation Keurig 2.0 system, which brews various sizes of single-serve drinks as well as whole carafes of coffee. The new system is incompatible with coffee pods made by other companies.

Keurig previously said Chief Financial Officer Frances G. Rathke plans to leave this year.

For the quarter ended Dec. 27, Keurig reported a profit of $134.6 million, or 82 cents a share, down from $138.2 million, or 91 cents a share, a year earlier. Excluding certain items, per-share earnings were 88 cents.

Sales were flat at $1.39 billion.

The company had projected high-single digit sales growth and earnings of 83 cents to 88 cents excluding certain items but including dilution from the Coca-Cola and Lavazza investments.

For the current quarter, Keurig expects earnings excluding certain items of $1 to $1.05 a share and sales growth in the mid-single digits. Analysts polled by Thomson Reuters project earnings of $1.18.

Keurig shares closed 3.9% lower at $121.20 on Wednesday.

Write to Josh Beckerman at [e-mail]

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