Specialty coffee retailer Keurig Green Mountain Inc. GMCR has been accused by a nationally recognized shareholders right law firm Robbins Arroyo LLP of misleading shareholders about its business prospects.
The law firm has filed a complaint with the U.S. District Court for the Northern District of California stating that Keurig Green Mountain made unrealistic sales projections which could not be attained due to lower-than-expected sales of Keurig 2.0 brewers. It also stated that shareholders suffered loss due to these unrealistic approaches made by the company.
Keurig Green Mountain’s much-hyped Keurig 2.0 brewer launched in Aug 2014 was not received well by consumers, especially because of the high price tag. Also, the unlicensed pods that consumers have been using for so long are not compatible with this brewer. Keurig 2.0 uses an interactive readability ‘lock-out technology’ that works only with licensed K-Cup pods. Contrary to Keurig Green Mountain’s traditional brewers which use single-serve canisters, Keurig 2.0 can brew a carafe of coffee.
Investors feel that Keurig 2.0 was not a success as Keurig Green Mountain failed to realize consumers' attachment to the refillable old pods which allowed them to brew the coffee grinds of their choice. As a result, the Keurig 2.0 brewer was not accepted by consumers, thus negatively affecting the company’s recently reported second-quarter top line.
On May 6, 2015, during the second-quarter fiscal 2015 earnings conference call, Keurig Green Mountain reported lower-than-expected sales due to soft sales of brewers category primarily because of the slow transition to the Keurig 2.0 system. Shares plunged following the disappointing results which also missed the Zacks Consensus Estimate for both earnings and sales.
The company even lowered the sales outlook for the fiscal year following the dismal second-quarter results and soft sales of Keurig brewers.
Soon after the failure of Keurig 2.0, Keurig Green Mountain reportedly had to face the brunt of investors following the launch of its much-awaited Keurig KOLD brewer on May 14. Here too, the company couldn’t keep up its commitment to online sell the Keurig KOLD brewer in fall 2015. Instead, the company revealed that Keurig KOLD will reach retail shops by the holiday season of 2016, again disappointing investors
Moreover, per media reports, analysts believe that the new brewer is high priced and consumers will not be ready to pay so much.
Keurig Green Mountain currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the consumer staples sector are Pilgrim's Pride Corporation PPC, The WhiteWave Foods Company WWAV and True Drinks Holdings, Inc. TRUU. All these stocks carry a Zacks Rank #2 (Buy).
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