Keurig Green Mountain Inc.GMCR is set to report fourth-quarter fiscal 2015 results on Nov 18, after the market closes. Last quarter, the company delivered a positive earnings surprise of 1.27%.
The company has delivered mixed results for the past four quarters with positive surprises in two of the quarters and negative surprises in the remaining with an average positive earnings surprise of 3.41%.
Let's see how things are shaping up for the upcoming announcement.
Factors to Consider
Keurig Green Mountain's sales performance has been sluggish over the past few quarters due to soft brewer sales. The company has been witnessing lower sales in the portion pack category over the past few months. Additionally, the company's much-hyped Keurig 2.0 brewer launched in Aug 2014 was not received well by consumers, mainly because of the high price tag. Also, the unlicensed pods that consumers have been using for so long are not compatible with this brewer. Moreover, Keurig 2.0 uses an interactive readability 'lock-out technology' that works only with licensed K-Cup pods. All this made the Keurig 2.0 unattractive, thereby hurting sales of the portion pack category. The sales trends are not expected to improve much in fiscal 2016 either.
Following softer sales for the past few quarters, the company has revised the fiscal 2015 outlook downward to reflect the impact of lower than expected Keurig pod sales. For the fourth quarter, Keurig Green Mountain expects adjusted earnings per share in a range of 70 cents to 75 cents per share. The guidance includes a foreign exchange headwind of 3 cents. Sales are likely to decline in low teens during the quarter.
Though the coffee maker has entered into several strategic alliances to maintain its position in the single-serve brewing category, higher investments in its Keurig KOLD brewer and other brands would increase the costs of the company.
Our proven model does not conclusively show that Keurig Green Mountain is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: ESP for Keurig is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 71 cents per share.
Zacks Rank: Keurig Green Mountain's Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank and are therefore worth considering include:
J. C. Penney Company, Inc. JCP with an Earnings ESP of +3.13% and a Zacks Rank #3.
Kohl's Corp. KSS with an Earnings ESP of +0.53% and a Zacks Rank #3.
Costco Wholesale Corporation COST with an Earnings ESP of +1.72% and a Zacks Rank #3
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