Coffee fades. Coffee prices have resisted the recent sell off in commodities not because of rising demand, but because of attempts by one or two speculators to squeeze the market, which has buoyed prices in futures markets. That situation will ease and, when it does, prices will ease. Despite prices being higher than they should really be, it’s a bit of a truism that coffee and cafes are a boom industry (thanks to hispters and late-converting Millennials) in major cities such as New York, London, Paris, Moscow, Chicago, and those in China and Japan. It’s now cool to be part of the coffee-cafe mobile device wi-fi culture (Australians don’t have to be told that; after all, some of us reckon we helped start the trend).
Big companies have moved to join the trend. Nestle with Nespresso (and its imitators), plus sales of larger and more expensive traditional espresso machines for home use, as well as a dazzling number of new coffee brands and types. One of the most high-profile corporate arrivals was Coca-Cola, which has built a 16% stake in the uber-cool Keurig Green Mountain company in the US, makers of coffee machines and pods (like Nespresso). Early this morning, that blew up as the company produced weak results, which resulted in shares plunging more than 29%, after hours. That wiped US$3 billion from the value of the company (Coca-Cola showing its usual kiss-of-death timing).
Keurig now plans a very uncool cut of 5% of its workforce, plus US$300 million in cost savings in the next three years (US$100 million this year). Why? Well growth in its machines, pods and accessories is down 26% in the June quarter — revenue and profits fell as well. The new cold-brewing coffee machine (that’s the “hot” way to drink coffee in the US), is being delayed until next year. Oh, and the best signal of all, there’s a problem: a US$1 billion share buyback to stabilise the shares, just as the Murdoch clan’s 21st Century Fox is now doing. — Glenn Dyer
The dynamic duo. No, not Batman and Robin but Lachlan and James. The Murdoch brothers graced the post-results briefing for 21st Century Fox this morning but didn’t impress, because the real action had taken place on Wall Street earlier in the day with a big sell-off in cable company and TV stocks — one of the biggest for years. Fox shares fell 6.7% in trading, and a further 3.7% after hours (as our dynamic duo were briefing analysts). Co-executive chairman Lachlan called the arrangement with CEO brother James “a true 50-50 partnership … We know each other better than anyone knows us.” Rupert gave us the upbeat bite in the press release: Lachlan kicked off the quarterly call with analysts, with some big picture, company vision stuff. James came in later to handle nuts-and-bolts questions, but left the nitty-gritty financials to beancounter John Nallen. It was a glimpse of the post-Rupert Murdoch future for Fox.
“You should not expect any seismic shift,” in strategy, Lachlan told analysts and journalists at the briefing. He also seemed to reassure investors who fear that the company might still try to make a mega-deal — like last year’s aborted US$76 billion attempt to buy Time Warner. While Fox may seek “bolt-on opportunities,” the company “will be opportunistic and disciplined, just as we have in the past”. Intriguingly, the reassuring voice of Fox’s former COO Chase Carey was not heard on the call, although Lachlan says he “continues to be highly involved in many aspects of the company”. But he no longer has power, instead he just offers advice (and is being paid US$20 million for a few words). Power is now James’ role in the duo. He responded to analysts’ questions about costs, revenue, sports rights, streaming video and unbundling and cord-cutting by cable subscribers (which was the driver for the big sharemarket crunch earlier in the day). Though it was chief financial officer John Nallen who provided all the number-crunching details on costs, revenue and earnings projections.
Fox is looking to do better but will be held back by weak performances in Fox TV and its film studios, which were the drags in the fourth quarter of the 2014-15 year. But the higher ad spending for the 2016 congressional and presidential polls will help TV and the cable channels over the next 17 months, where higher costs will be taken ahead of three big movie releases in a year’s time. On top of that, Fox will have the 2017 Super Bowl, so earnings nirvana two years hence? No wonder there’s a US$5 billion buyback in place for the next year at least. — Glenn Dyer
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