K-cup troubles help drive down Caribou outlook

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: August 6, 2012 - 9:33 PM

Weakness in its single-serving market leads to flat sales outlook, lower profits.

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Michael Tattersfield

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Caribou Coffee Co. Monday lowered its profit outlook for the rest of the year, vexed by growing weakness in its single-serve coffee business.

The Brooklyn Center company topped Wall Street's second quarter earnings forecasts, but its stock still sank 5 percent in after-hours trading.

While the bulk of Caribou's revenue comes from its namesake coffeehouses, it has a significant and fast-growing business of single servings for Keurig coffee machines -- so called K-cups.

But the K-cup business has been in trouble since Green Mountain Coffee Roasters, which makes Keurig machines, went into a slowdown three months ago.

Caribou's expectations have been scaled back. It now anticipates full-year profits of 43 cents to 46 cents per share, down from a view of 47 cents to 50 cents three months ago. It was the second consecutive quarter in which Caribou dropped its profit guidance.

Also, the company Monday lowered its sales guidance for the rest of the year to "flat." Three months ago, the firm was expecting 6 to 8 percent sales growth.

Results were released after the stock market closed, but in after-hours trading, shares fell 55 cents to $10.40.

Caribou's retail outlets generate 77 percent of Caribou's overall sales. And quarterly comparable same-store coffeehouse sales were up 2.8 percent over a year ago.

But Caribou's commercial sales fell 7.9 percent over a year ago, a rare decline in a business that's routinely posted double-digit gains. Commercial sales include roasted coffee sold through supermarkets and the suddenly shaky K-cup business.

Caribou sells green coffee beans to Green Mountain, which roasts them to Caribou's specifications and then markets a Caribou-branded single-serve product. Caribou gets a royalty on those sales.

Green bean shipments to Green Mountain are down significantly. Moreover, on the retail level, Caribou is feeling pressure from new market entrants like Starbucks.

On the premium end of the single-serve business, new brands are taking share from Caribou and other leading players, Caribou CEO Michael Tattersfield said in a conference call with stock analysts.

Also, Green Mountain's positioning of Caribou as a premium-priced offering has had a "meaningful impact" on Caribou's sales volume at discount club stores. "We have lost part of our distribution on Caribou K-cup with Sam's Club and have recently lost our Costco distribution," Tattersfield said.

He acknowledged the "rapidly changing dynamics of the single-serve category." Still, Tattersfield said. "We remain confident that the Caribou brand will be a significant player in single serve."

Caribou posted second-quarter earnings of $2.8 million, or 13 cents a share, topping the 9 cents a share expected by analysts polled by Thomson Reuters. Second-quarter profit was down from $4.4 million, or 21 cents per share, a year ago, but that included a big one-time tax benefit.

Caribou's sales of $81.1 million came in below analysts's forecasts of $84.2 million.

Mike Hughlett • 612-673-7003

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