Keurig Green Mountain Inc. issued a recall order on Dec. 23 for around 7.2 million of its single-serve coffee brewing machines, along with a warning for overheating machines that could cause injuries by releasing hot liquid on users.
Of the recalled machines, 6.6 million units are in the United States and 564,000 units are in Canada.
According to Keurig, the chances of the machines malfunctioning increase when they are used to brew over a couple of cups in quick succession.
"We believe the earnings impact specifically from the recall is unlikely to be material but that it could hurt brand perception, negatively impacting future brewer sales," said Stifel, Nicolaus & Co. analyst Mark Astrachan.
The negative impact may have already started, as the price of Keurig shares decreased by 2.5 percent to $136.29 during morning trading. The falling price could be due to investors being worried that the recall order issued could cast doubt on Keurig's brand, a blow that comes at a critical time when the company is rolling out new machines and is planning an expansion beyond its current single-serve coffee business.
The machines affected by the recall order are the company's Mini Plus brewers that were manufactured from December 2009 to July 2014 that have model number K10 plus serial numbers that begin with 31. The machines, used for the preparation of hot drinks like coffee, cocoa and tea, are sold for around $100 through the company's website, department stores and retail outlets.
Astrachan added that Keurig's timing of the recall order was notable, as it was released two days before Christmas. Astrachan also said that back in November, during the company's earnings call for its fourth quarter that ended Sept. 27, the company already noted an issue with its brewers. During the call, officials revealed an impact worth $22 million on the company's sales due to Mini Plus machines that were returned.
According to the U.S. Consumer Product Safety Commission, around 90 injury reports have been sent to Keurig involving hot liquid spraying out from the brewers. Health Canada, meanwhile, noted that the company had been informed of 17 cases of minor burns.
Keurig stated in a filing last month that it had told the U.S. Consumer Product Safety Commission and Health Canada of a possible issue with its Mini Plus machines. The company added that after factoring in the insurance claims expected by Keurig, it had written down a net charge of $10 million for its financial year 2014 to address the problem.
