NetworkNewsWire
Editorial Coverage: The annual report for
2017 by the National Coffee Association indicated that for the
first time in almost seven decades of reporting the industry
trends, more than half the coffee consumed daily in the United
States was gourmet, which represented a hearty 59 percent of total
consumption.
- Coffee consumption in North America at highest levels since
2012
- Gourmet coffee over half of all consumption for first time in
recorded history
- Coffee prices potentially bottomed out with some analysts
predicting major rise
- Product quality/innovation and end market resonance likely the
key differentiating factors moving forward
With 64 percent of adults reporting drinking at least one cup
per day, overall coffee consumption is up 2 percent from last year
to reach the highest levels since 2012. The North American coffee
market is on pace to run at a CAGR of some 5.8 percent through
2023, according to a recent report
published by Mordor Intelligence. Youngevity International,
Inc. (NASDAQ: YGYI) (YGYI
Profile), while historically recognized more for the
company’s innovative products, direct sales and marketing, has been
steadily executing on a plan to build scalable coffee operations
across multiple vertical segments. Dunkin' Brands Group,
Inc. (NASDAQ: DNKN) continues to differentiate itself in
the consumer market with broad appeal and offerings such as its
recently debuted Cold Brew coffee, the most successful launch in
the company’s history on an incremental sales basis. Industry
juggernaut Starbucks Corporation’s (NASDAQ: SBUX)
share price may be in a holding pattern with a slight decline
lately, but the king is still trying on new clothes, as evidenced
by the recent launch of a plant-based Protein Blended Cold Brew in
almond and cacao. Coffee Holding Co., Inc. (NASDAQ:
JVA) continues to branch out in the commercial end of the
market via deals such as its partnership extension with Smart &
Final, which has 323 upscale locations across California and
Oregon. Farmer Brothers Company (NASDAQ: FARM) is
also banking heavily on North America’s seemingly unflappable love
affair with coffee, as this roaster, wholesaler and distributor
recently detailed expansion of its roasting capacity to more than
200 million pounds per year, as well as expansion of its
distribution capabilities.
A Perfect Price Storm Brewing?
Mounting global input sources and a decline in the value of
primary global producer Brazil’s currency have added momentum to
falling coffee prices, which have been declining since the highs of
late 2016. Coffee futures are currently off by around 17 percent
since the start of the year to near five-year lows, mirroring the
decline in the value of the Brazilian real against the USD and
defying analyst consensus about a rebound. The International Coffee
Organization’s global composite price dropped 3 percent last month
to the lowest monthly average in over a decade, and the CFTC report
indicates record net short positions in the coffee market for the
start of August.
Nevertheless, coffee futures may be bottoming out and in a
position to realize the kind of jump seen back in 2014, especially
if a developing El Nino Modoki (the other dominant mode of
interannual variability in the tropical Pacific), exacerbated by
lower solar output (a lack of sunspots), translates into dry
weather in the coffee growing regions of Brazil, as it does around
75 percent of the time.
Newer to the Field but Bringing Plenty of
Ammo
Youngevity International, Inc. (NASDAQ:
YGYI) operates via two distinct segments: direct
selling, which currently accounts for 83 percent of
revenues, and commercial coffee, which contributes the
remaining 17 percent. The company uplisted to NASDAQ in June 2017
and was subsequently added to the Russell Index in June 2018. With
more than 18.6 million direct selling reps in the United States —
the two largest segments of which are millennials and gen Xers
(36.9 and 34 percent respectively) — Youngevity is uniquely poised
to communicate with two of the most difficult to market to and yet
highly sought-after target demographics.
On the back of the company’s sizeable direct marketing presence
in areas such as anti-aging, skin care, weight loss and brain
health, Youngevity has been branching out rapidly into commercial
coffee via its wholly owned CLR Roasters subsidiary. Projected to
be worth more than $622 billion combined by 2021, these scalable
growth areas in health are targeted quite effectively by an
ever-evolving array of intelligently designed and differentiated
brands.
Recipe for Success Includes Field-to-Cup and Customized
Blends
This same eye for formulating unique, intelligently designed
products has primed Youngevity exceptionally well for addressing
emerging fronts in the coffee game, such as functional beverages.
Youngevity’s CLR Roasters has already been doing robust business
via company-owned brands Josie's Java House and Café La Rica.
In addition, the company’s recently executed five-year contract
to sell and process more than 41 million pounds of green,
high-grown washed Nicaraguan conventional coffees per year should
bring in steady revenues for Youngevity to the tune of some $250 million (based on mid-August 2018 coffee
future prices), which will be rolling into the company’s coffers
from 2019 through 2023. Extensive regional work by the company’s
wholly owned Siles Family Plantation Group was instrumental in
securing this lucrative long-term contract, and the partnership
with Alain Hernandez of H&H Export Group has set Youngevity up
nicely for further expanding its footprint in Nicaragua.
CLR Roasters’ Miami roasting operation roasts around 25,000 to
28,000 pounds per day (10 million pounds per year) and has an
annual grinding capacity of some 15 million pounds. The company’s
facility is able to boast consistently high-quality standards due
to a field-to-cup process that it controls every step of the way.
While many bigger roasters have their own blend specs, CLR Roasters
works directly with its customers to develop unique, customized
blends. The company offers a wide variety of packaging options to
satisfy every kind of end market consumer. From two-ounce
fractional packs and five-pound bags to single-serve K-Cups of
customized blends, the company’s production facility provides
impressive versatility and is able to churn out K-Cups at the rate
of 220 per minute. Despite the impressive operational scale of the
company’s facility, CLR Roasters prides itself on the retention of
boutique roasting methodologies, including visual, touch and
smell-based analysis by in-house roasting veterans.
Share Price Pivot Point Echoing Potential Coffee Price
Pivot
While seemingly rangebound at just over $4 for the last month, a
number of positive indicators have cropped up recently for YGYI’s
share price. Full-service investment banking firm and equity
research heavy-hitter The Benchmark Company initiated coverage on
August 10 with a “buy” rating and $7 price target. The August 14
release of solid Q2 FY18 data included a 6.6 percent jump in revenues compared with numbers
from one year ago. Those numbers appear to be led by a 23.7 percent
increase in revenues from the company’s commercial coffee segment
as well as EPS that beat the Thomson Reuters’ consensus estimate by
$.03.
The Q2 data was handsomely in line with earlier Q1 FY18 results,
which saw a 39.9 percent rise in coffee segment revenues and an 11
percent increase in overall revenues compared to Q1 FY17 and
featured striking data points such as a 325 percent boom in sales
of Café La Rica Espresso Brick Packs. FINRA data also indicates a
72 percent drop in short interest for August, from 5,000 previously
down to 1,400 shares, indicating overall market sentiment may have
pivoted significantly.
The rise in numbers are showing up in other companies’ reports
as well. Dunkin' Brands Group, Inc. (NASDAQ: DNKN)
has seen impressive share price appreciation in recent years,
posting a 60 percent rise over the last two years. Q2 FY18 figures
were impressive with the company’s consumer packaged goods (CPG)
business seeing the most success. Dunkin' Donuts K-Cups in
particular are showing enviable numbers, posting growth in excess
of 20 percent, or four times the overall CPG growth rate.
Starbucks Corporation (NASDAQ: SBUX), which
promised late last year to return some $15 billion to shareholders
via buybacks and dividends through 2020, has a 22.3 percent
five-year dividend growth rate although the share price has been
effectively flat year-to-date. The price decline is occurring as
the company faces increasing competition in markets such as China.
SBUX also may be facing market saturation here in North America,
where some analysts suggest that the company’s latest offering, a
plant-based protein coffee, is a sign SBUX is now actually playing
catch up with DNKN in cold brew coffees.
Coffee Holding Co., Inc. (NASDAQ: JVA) recently
acquired Wisconsin-based wholesale roasting company Steep N Brew
Coffee ($7 million in revenues for the recent fiscal year) for
$2.85 million, along with the fair-trade only Café Fair brand and
its eponymous Steep N Brew coffee brand. JVA has also added a
private label cold brew as well as the Café Caribe Espresso coffee
product to further enhance its commercial ground game and is
currently working on developing new areas to pump its growing
portfolio of caffeinated beverages into.
Farmer Brothers Company (NASDAQ: FARM) recently
posted a 13.7 percent year-over-year uptick in the company’s green
coffee processing capacity even as gross profits advanced by $5
million over the same period. Farmer Brothers continues work
integration and acquisition of the Boyd Coffee Company assets
announced this time last year, augmenting FARM’s reach across its
existing customer channels, product portfolios and distribution
networks.
Whether talking about a small regional retail chain of
commercial venues selling boutique coffee brands or a massive
international retail operation, the future for coffee consumption
appears to be hot. In fact, some analysts are even forecasting a
40 to 50 percent rise in prices if we get a
full-fledged drought.
For more information on Youngevity International, visit Youngevity
International, Inc. (NASDAQ: YGYI)
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