Business

Coinstar’s coffee kiosk clouds

Trouble is brewing at Redbox owner Coinstar as it attempts to expand beyond DVD rentals into the coffee market.

Coinstar, known for its bright red DVD kiosks that sit outside stores, has been setting up dispensers to brew mochas and lattes on the spot for lower-than-Starbucks prices, starting at $1.

CEO Paul Davis told analysts in a July call that its “Rubi” coffee dispensers — also colored bright red — would be in 500 locations by the end of last year.

Now, six months later, the company has rolled out only about 300 kiosks and has not released any financial figures about the economics of the business, according to a recent research report from Gabelli & Co.

What’s more, the Starbucks veteran hired to lead the coffee effort, Ken Redding, is no longer with the company, a source said. A Coinstar spokeswoman declined to confirm his departure.

To complicate matters, Coinstar CEO Davis surprised Wall Street earlier this month when he announced he would retire in March. The company named Chief Financial Officer Scott Di Valerio to replace him.

The changes come as Coinstar grapples with several initiatives. In addition to the coffee effort, Coinstar and partner Verizon are prepping the rollout of Redbox Instant, which combines Redbox DVD rentals with the ability to stream movies online.

A spokeswoman said, “Coinstar’s recent announcement of CEO Paul Davis’ planned retirement and Scott Di Valerio’s appointment as the company’s next CEO is a direct result of the board’s longtime focus on succession planning and developing a deep management team.”

Some investors, however, are questioning the departures and the new initiatives — especially after The Post exclusively reported in August that the company was also mulling a potential sale.

Recently, The Post learned that Coinstar rejected a takeover offer from Providence Equity Partners last summer, according to two sources close to the situation. At the time, Coinstar was trading at around $60 a share. Stock closed yesterday at $49.95.

Sources said Davis persuaded the board to reject the proposal, arguing the company was worth more in light of its growth initiatives.

A Coinstar spokeswoman said that as a matter of company policy it does not comment on market rumors or speculation. Providence also declined to comment.

One shareholder who wants to see Coinstar sold said that, with the stock price slumping, the board should be more open to the idea.

Any potential buyer would need to get comfortable with the decline in Redbox’s per-kiosk video rental volume, which was off 7.2 percent in the second quarter and 17 percent in the third.

There is mounting concern that the inexpensive DVD-rental business is coming under pressure from streaming services such as Netflix and Amazon’s instant video.

Gabelli’s report projects Coinstar’s Ebitda, or earnings before taxes, interest, depreciation and amortization, will fall five percent over the next four years, from $510 million, to $485 million in 2016, making the share price “extremely inexpensive.”

We “believe the low valuation is driven by a fundamental underestimation of Redbox’s longevity,” the Gabelli report said.