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Keurig Green Mountain Inc. (NASDAQ: GMCR)

17 March 2014

Saad Hirani | David Liang

AGENDAIndustry Analysis

Company Analysis

Company Fundamentals

Chart Analysis

Competitors

Competitive Analysis

Entry strategy

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INDUSTRY ANALYSIS - COFFEE RETAIL AND PRODUCTION

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Overview

Coffee retail and production industry has a huge addressable market with stable consumption.

107 million people in the United States drink coffee at an average of 3.5 cups per day

2010 retail coffee industry was $30-$32 billion in the United States

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

World’s second most sought-after commodity

Valued at $100 billion worldwide

Addressable Market

Stable Consumption

1980 1985 1990 1995 2000 2005 2010 20150

50

100

150

200

250

300

0

2

4

6

8

10

12

Per Capita Consumption vs. Price of Coffee

Year

Pric

e of

Cof

fee

(Per

Pou

nd)

Per

Cap

ita C

onsu

mpt

ion

(lb)

Inexpensive luxury good Coffee consumption very

resistant price swings

COMPANY ANALYSIS – KEURIG GREEN MOUNTAIN

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Company Overview

Keurig Green Mountain is a coffee producer (traditional and single-serve packaging) and manufacturer of the Keurig

single-serve coffee brewers.

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

Coffee producer and coffee brewer manufacturer in USA and Canada

Forms: whole bean, ground coffee, single-serve portion packages

Keurig single-cup brewers and single-serve portion packs (92% of net sales in

2013)

Value Proposition Instant coffee with

consistent quality Less than 3 minutes Over 290 selections

39%

COMPANY ANALYSIS – KEURIG GREEN MOUNTAIN

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Business Model

Keurig Green Mountain is a coffee producer (traditional and single-serve packaging) and manufacturer of the Keurig

single-serve coffee brewers.

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

Razor blade and razor model Sell brewer at cost Sell K-cups at high

margin K-cup variety sold through:

Own brands (Tully’s, Van Houtte, Timothy’s)

Licensed brands (Starbucks, Dunkin’ Donuts, Tazo, Folgers)

Generic brands

73%

20%

8%

Keurig Green Mountain FY2013 Net Sales Contributors

K-Cup Brewer Traditional coffee

COMPANY FUNDAMENTALS

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Essential Statistics

Keuring Green Mountain has seen consistently growing revenues and operating margins. A decreasing debt-to-

assets ratio means a lower leveraged position

Market Cap: $16.86 bn $33.3 bn (KRFT) $169.4 bn

(NESM) P/E: 33.6 (Industry average:

17.7) Forward P/E: 25.4 ROIC: 16.6%

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

2011 2012 20130

1000

2000

3000

4000

5000

0.00

5.00

10.00

15.00

20.00

Revenue and Operating Margins

Year

Rev

enue

(M

illio

ns)

Ope

ratin

g M

argi

n (%

)

2010 2011 2012 20130

5001000150020002500300035004000

0%

5%

10%

15%

20%

25%

30%

Total Assets, Total Debt, Debt to Assets Ratio

Year

Ass

ets

and

Deb

t (m

m)

Deb

t-to

-ass

ets

ratio

(%

)

Highlights Gross profit grew 40% (2012)

and 27% (2013) Record high 5.1mm Keurig

machines sold in 2014 Q1 Debt-to-assets decrease form

24% (2010 to 4% (2013)

CHART ANALYSIS

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Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

Source: Google Finance

COMPETITORS

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Main Competitors

Keurig Green Mountain is the strongest competitor in the single-serve coffee industry due to the lower price range

of its brewers and its offering of the largest variety of coffee.

Nestle (Nespresso) Kraft Foods (Tassimo) Starbucks Corp.

(Verismo)

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

Competitive Advantage

Lower cost in Keurig brewer price Lowest starting price

Largest variety of coffee options offered in K-Cups Both Keurig Green

Mountain brands and from generic brands

2014 Single-serve brand of the year

Generic-Brand K-Cups Keurig Green Mountain’s

patent on K-cups expired in 2012

Generic K-cups entry into market

Minimal impact Green Mountain’s coffee

brands grew 34% while K-Cup industry grew 38%

ROIC grew from 13% (2012) to 17% (2013)

SUMMARY

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Catalysts

Keurig Green Mountain is the company best positioned to benefit from the shift from traditional automatic drip

coffee makers to single-serve coffee.

Growth of single-serve coffee industry

Industry Analysis | Company Analysis | Company Fundamentals | Charts | Competitors | Summary

Entry Strategy Buy GMCR when stock

price drops below $100.00 Current price: $115.56

Hold into Q2 earnings report on May 7, 2014

Single-serve coffee has 30% of coffee industry dollar share2

Up from 8% in 2011