BANGALORE, April 30 (Reuters) - Shares of Green Mountain Coffee Roasters Inc GMCR.O surged 50 percent to an all-time high on Thursday, a day after the company announced a distribution partnership with Wal-Mart Stores Inc (WMT.N) and also posted strong quarterly results.
On Wednesday, the company said it entered into a deal with Wal-Mart, where the world’s largest retailer would distribute its flagship Keurig Single-Cup Brewing System in over 3,000 of its stores. [ID:nBNG490765]
“The Wal-Mart deal helps them in three ways: it increases their distribution base, builds awareness for single-cup systems and has the potential to drive other retailers to follow suit and get on board the single-cup train,” William Blair & Co analyst Jon Andersen said by phone.
The deal will also give Green Mountain access to a broader customer base, as historically, it has had distribution deals with traditional department stores, upscale mass merchandisers and specialty chains, the analyst said.
Since the company has already begun shipping products to Wal-Mart for Mother’s Day, which falls on May 10 this year, initial sell-in will add to fiscal third-quarter sales, Andersen wrote in a note to clients.
Analyst Stephanie Hall of Gradient Analytics, however, said the company’s Keurig brewing system, which requires the continual purchase of K-cups to use the brewer, is just too expensive for everyday customers.
“Maybe having a presence in Wal-Mart will help to mitigate the pricing variable, but I can see that happening only up to a point. And just because the product is in Wal-Mart doesn’t mean it will sell,” she said in an e-mail to Reuters.
The company will only be able to sustain its growth if it can increase the sales of both its brewers and K-cups per brewer, Hall said.
“I don’t see that happening though without lower prices on K-cups. And once the economy bounces back, people that might be trading down their cup of Starbucks for a K-cup may resume their Starbucks habit,” she said.
On Wednesday, the Waterbury, Vermont-based company posted second-quarter profit that more than doubled, boosted by sales from the Keurig brewing system and raised its outlook for the year.
Analyst Andersen said the company’s full-year outlook could prove conservative, given strong brewer unit growth trends and distribution expansion plans, and raised his 2009 earnings estimate by 19 percent to $1.55 a share.
The company’s stock rose 39 percent to $73.25 in afternoon trade, making it the third biggest percentage gainer on Nasdaq. They had earlier touched a high of $79.13.
As many as 4.6 million shares changed hands in intra-day trading, about eight times their 50-day moving average volume. (Editing by Deepak Kannan)