Green Mountain Coffee Roasters, Inc., announced its fiscal 2011 first quarter results for the 13 weeks ended Dec. 25, 2010.
Net sales for the first quarter of fiscal 2011 increased 67 percent to $575.0 million as compared to $345.2 million for the first quarter of fiscal 2010. Under Generally Accepted Accounting Principles (GAAP), net income for the first quarter of fiscal 2011 totaled $2.2 million, or $0.02 per diluted share, representing a decrease of 78 percent as compared to GAAP net income of $10.1 million, or $0.07 per diluted share, for the first quarter of fiscal 2010.
The company's non-GAAP net income for the first quarter of fiscal 2011 increased 73 percent to $26.1 million, from non-GAAP net income of $15.1 million in the first quarter of fiscal 2010. Fiscal first quarter 2011 non-GAAP net income excludes pre-tax items of: $11.2 million in Van Houtte transaction-related expenses including the write-off of $2.6 million of deferred financing fees associated with the former credit facility; $6.0 million in legal and accounting-related expenses associated with the SEC inquiry, the company's internal investigation and pending litigation; $6.2 million in amortization of identifiable intangibles related to the company's acquisitions; and, $5.3 million in realized and unrealized loss on foreign exchange transactions associated with hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition. First quarter 2010 non-GAAP net income excludes pre-tax items of: $5.1 million in transaction-related expenses for the Timothy's and Diedrich acquisitions and $2.1 million in amortization of identifiable intangibles related to the Company's prior acquisitions.
On the same basis of presentation, GMCR's non-GAAP earnings per diluted share increased 62 percent to $0.18 in the first quarter of fiscal 2011 from $0.11 in the first quarter of fiscal 2010.
"With sales growth driven by the strong sales of Keurig Single-Cup brewers and K-Cup portion packs during the holiday season, we are off to a very strong start for fiscal year 2011," said Lawrence J. Blanford, GMCR's president and CEO in a prepared statement. "With increasing consumer adoption, the Keurig Single-Cup Brewing System, our growing family of brands, and K-Cup portion pack products are changing the way North America prepares and enjoys its coffee and other beverages."
"Looking forward, we are committed to continuing to represent the best of business in terms of our growth and profitability and our ability to make a positive difference in the world. With our continued growth our ability to make a positive difference continues to increase. We appreciate and thank our enthusiastic consumers, as well as our employees, business partners and other stakeholders, all of whom make our accomplishments possible."
Consistent with GMCR's announcement on Aug. 10, 2010 of its entering into a stock purchase agreement with Luigi Lavazza S.p.A (Lavazza), on Jan. 28, 2011, GMCR and its Keurig business unit entered into a multi-year development and distribution agreement with Lavazza. Under the terms of the agreement, Keurig will be the exclusive distributor of new co-developed, Lavazza-manufactured single-serve espresso machines and capsules marketed to home consumers in the U.S. and Canada. While there is much work to do, GMCR and Lavazza are working towards having the new machines and/or capsules available for the 2012 holiday season.
On Dec. 17, 2010, the company completed its acquisition of LJVH Holdings, Inc. for an aggregate cash purchase price of CAD $915 million, or USD $908 million, subject to future adjustment based on Van Houtte's working capital, net indebtedness and pre-closing taxes as of immediately prior to the acquisition's closing. GMCR financed the Van Houtte acquisition through a combination of cash on hand and new debt financing.
With a goal of bringing focus and expertise to what the company believes is a strong Canadian opportunity, the former Van Houtte business becomes GMCR's third business unit, GMCR Canada, or the Canadian business unit (CBU), led by former Van Houtte president and CEO, Gérard Geoffrion as its president.
"Since closing the Van Houtte acquisition, we have been working collaboratively with the Van Houtte management team to explore how best to structure and integrate the business into the GMCR family," said Blanford. "We are still in the early stages of integration assessment and planning, but we believe we are building momentum quickly."
Approximately 91 percent of consolidated net sales in the first quarter were from the Keurig brewing system and its recurring K-Cup® portion pack revenue, including Keurig-related accessory sales and royalties from third party licensed roasters.
Net sales from K-Cup portion packs totaled $332.9 million in the quarter, up 89 percent, or $156.7 million, over the same period in 2010.
In September 2010, the company announced a price increase on all K-Cup portion packs beginning on Oct. 11, 2010. The company expects the price increase will be fully implemented by the end of February 2011. In the first quarter of fiscal 2011, the price increase resulted in increased consolidated net sales dollars of approximately 4 percent over the prior year period.
Net sales from Keurig brewers and accessories totaled $188.0 million in the quarter, up 58 percent, or $68.6 million, from the prior year period.
Supporting continued growth in K-Cup demand, GMCR shipped 2.2 million Keurig brewers during the first quarter of fiscal 2011. This brewer shipment number does not account for consumer returns to retailers and compares to 1.5 million brewers shipped by GMCR during the first quarter of fiscal 2010. The company estimates that GMCR brewer shipments represented approximately 89 percent of total Keurig Brewed brewers shipped system wide in the period.
First quarter 2011 gross margin was 25.1 percent of total net sales compared to 27.7 percent for the corresponding quarter in fiscal 2010. First quarter 2011 gross margin was adversely affected primarily by higher brewer warranty expenses, to a lesser degree, brewer sales returns in the quarter, and higher coffee costs. These adverse effects were partially offset by the price increase on K-Cup portion packs effected beginning Oct. 11, 2010. The increase in warranty expense reduced the fiscal 2011 first quarter's gross margin by approximately 230 basis points as compared to last year's first quarter gross margin.
The company increased its GAAP operating income by 21 percent, to $23.1 million, in the first quarter of fiscal 2011 as compared to $19.0 million in the year ago quarter.
GMCR's first quarter fiscal 2011 non-GAAP operating income of $43.9 million increased 67 percent over non-GAAP operating income in the first quarter of fiscal 2010 of $26.2 million, representing 7.6 percent of net sales in both first quarters.
The company's tax rate for the fiscal first quarter was 81.9 percent as compared to 43.7 percent in the prior year quarter reflecting the tax effect of the recognition of the non-deductible acquisition-related expenses incurred during the company's fourth quarter of fiscal 2010 and first quarter of fiscal 2011 for the Van Houtte acquisition which closed during the company's first quarter of fiscal 2011. The company's fiscal 2011 effective tax rate excluding the non-deductible acquisition-related expenses is estimated to be approximately 38.6v percent.
Diluted weighted average shares outstanding increased 6.9 percent to 147.0 million in the fiscal first quarter 2011 from 137.5 million in the fiscal first quarter 2010 primarily due to the issuance of 8.6 million shares of common stock to Luigi Lavazza S.p.A on Sept. 28, 2010.
Cash and short-term cash investments were $62.9 million at Dec. 25, 2010, up from $4.8 million at Sept. 25, 2010.
Accounts receivable increased 69 percent year-over-year to $238.1 million at Dec. 25, 2010, from $140.9 million at Dec. 26, 2009, as a result of continuing strong sales during the first quarter of fiscal 2011, particularly within the retail channel where days sales outstanding is higher than other channels.
Inventories were $269.1 million at Dec. 25, 2010 including $35.2 million of inventories acquired as part of the Van Houtte acquisition. This compares to $262.5 million at Sept. 25, 2010. Excluding the acquired Van Houtte inventories during the last week of the first quarter of fiscal 2011, inventories of $233.9 million increased 100 percent year-over-year from $117.2 million at Dec. 26, 2009, as part of the company's effort to ensure sufficient inventories of brewers and K-Cups to meet anticipated consumer demand for the second quarter of fiscal 2011.
Debt outstanding increased to $1.085 billion at Dec. 25, 2010 from $354.5 million at Sept. 25, 2010 as a result of the company's acquisition of Van Houtte on Dec. 17, 2010.
The company provided the following revised and/or first issuance of estimates for its fiscal year 2011 inclusive of its acquisition of Van Houtte.
- Total consolidated net sales growth of 75 percent to 80 percent.
- The company reaffirmed its 2011 non-GAAP earnings per diluted share range of $1.19 to $1.29 per diluted share, excluding any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry, the company's internal investigation and pending litigation; amortization of identifiable intangibles related to the company's acquisitions; and, foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition.
Capital expenditures for fiscal 2011 in the range of $245.0 million to $290.0 million, including capital expenditures as a result of the Van Houtte acquisition.
The company also provided its first estimates for its second quarter of fiscal 2011 inclusive of its acquisition of Van Houtte:
- Total consolidated net sales growth of 92 percent to 97 percent.
- Non-GAAP earnings per share in the range of $0.38 to $0.42 per diluted share excluding any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry, the company's internal investigation and pending litigation; and, amortization of identifiable intangibles related to the company's acquisitions.