UPDATE: Keurig’s single-serve coffee empire in jeopardy, analysts say

By Jennifer Booton, MarketWatch

Keurig stock downgraded to hold at Canaccord

Shares of Keurig Green Mountain fell nearly 30% Thursday after the company reported plunging sales of its at-home brewers, a disappointing outlook and a proposed fix that one analyst said offered “telling” signs of a company struggling to turn around its business.

While Keurig (GMCR) still believes it can reach long-term earnings goals despite vastly underperforming expectations last quarter, Stifel analyst Mark Astrachan disagrees.

The analyst reduced his earnings estimates for fiscal 2015, 2016 and 2017 and said slowing sales for hot coffee brewers, worsening margins and “considerable questions” surrounding Keurig Kold, the company’s SodaStream (SODA) rival expected to hit stores shelves in October, will “likely result in continued underperformance” of Keurig’s stock.

Shares of Keurig tumbled 29.5% to $52.80 in recent trade, leading the S&P 500 laggards. Its shares are down 51% over the past three months.

Canaccord Genuity analyst Scott Van Winkle was equally as skeptical, downgrading the stock to hold from buy on Thursday and axing his stock price target by 46% to $65.

In a note to clients, Van Winkle said he “can’t forecast meaningful growth at the company” and “can’t recommend buying the stock” until Keurig either proves a market for Kold, or competitive pressures dissipate. Keurig’s away-from-home commercial business is also “at risk,” he said, despite facing little competition.

Keurig’s attempt at a multiyear fix did little to offset these concerns. The plan includes merging Keurig’s U.S. and Canadian businesses and cutting 5% of workforce to save $100 million in costs this year and $300 million over the next three years.

Van Winkle said the cost cuts, combined with the company’s already tempered expectations for hot brewer sales, signals “significantly moderated” internal growth expectations.

“A major cost saving restructuring event for a growth stock, even if growth was only single digits, is a telling event, in our opinion,” said Van Winkle.

Keurig’s other ideas include an advertising campaign on Keurig boxes that will explain why k-cups are, in the company’s opinion, so awesome, as well as a plan to buy back $1 billion of its shares, which will help to temporarily inflate earnings per share, a benefit for short-term shareholders.

To make matters worse, Keurig Chief Executive Officer Brian Kelley said it is going to take “several quarters” for the cost cuts, buyback and advertising campaign to have any kind of impact on the company’s financial results. He’s also expecting just “minimal sales contribution” from Keurig Kold in the fourth quarter.

Meanwhile, the company did not provide a timeline for when a new line of products it refers to as “smart brewers” — interactive machines that can read individual coffee pods and adjust brewing mechanisms accordingly — will hit the production line, despite the fact that rival Nespresso has been offering them through its VertuoLine since the 2014 holiday season.

“I’m not going to go into any more detail than to say we are working on it,” said Kelley.

Read More: K-cup 2.0