Green Mountain Coffee Roasters, Inc. Reports 28 Percent Sales Gain For Single-Serve Packs In Third Quarter

Green Mountain Coffee Roasters, Inc., a provider in specialty coffee and coffee makers, today announced its third quarter fiscal year 2012 results for the 13 and 39 weeks ended June 23, 2012.

“Our third quarter results demonstrate continued business strength and solid fundamentals, particularly in light of the robust comparable quarter we reported in the year ago period,” said Lawrence J. Blanford, GMCR’s president and CEO in a prepared statement. “Our Keurig® Single Cup Brewing system continues to revolutionize the way North Americans prepare and consume their single-serve beverages and our proven ability to grow consumer awareness and demand for the system has enabled us to deliver extraordinary results over the past five years.”

“As we become larger, however, our sales growth trajectory will understandably moderate from hyper-growth to a level more in-line with other successful growth businesses,” continued Blanford. “Based upon our current analysis of business fundamentals and the single-serve opportunity, we believe we will deliver annual sales growth in the range of 15 percent to 20 percent with annual earnings growth in the mid-teens over the longer term.”

GMCR’s board of directors has authorized the company to repurchase up to $500 million of its common shares over the next two years, at such times and prices as determined appropriate by the company's management in collaboration with the board of directors. The shares will be purchased with cash on hand, cash from operations, and funds available through our existing credit facility.

“Based on expectations for future growth and the company’s ability to generate meaningful free cash flow in 2013 and 2014, the board of directors has decided to strategically deploy its capital by authorizing the repurchase of common shares from time to time depending on market conditions,” said Michael J. Mardy, interim chairman of GMCR’s board of directors.

Approximately 89 percent of consolidated third quarter fiscal year 2012 net sales were from sales of Keurig® single cup brewers, single-serve packs, and Keurig®-related accessories, with the remainder of net sales consisting primarily of sales of bagged coffee and sales from the office coffee services business.

The increase in single-serve pack sales was driven by a 28 percentage point increase in sales volume and a 3 percentage point increase in K-Cup® pack net price realization due primarily to price increases implemented during fiscal 2011 to offset higher green coffee and other input costs.

GMCR sold 1.4 million Keurig® single cup brewers during the third quarter of fiscal year 2012. This brewer shipment number does not account for consumer returns.

The company estimates that the combination of brewer shipments from GMCR and its licensed partners resulted in shipments of 1.5 million Keurig® single cup brewers in the third quarter of fiscal year 2012.

The third fiscal quarter’s net sales included $20 million of sales of new Vue® brewers and Vue® packs. According to data from The NPD Group, Vue® brewer sales were more than two times that of other coffee and espresso makers in its price category in the quarter ending June 2012.

Other products and royalties declined year-over-year primarily as a result of the sale of the Filterfresh on Oct. 3, 2011.

In the third quarter of fiscal 2012, gross margin declined to 34.9 percent from 36.8 percent in the prior year period.

The decline compared to the prior year period was due in part to under-utilization of the company’s manufacturing base as a result of lower than expected manufacturing through-put primarily due to lower K-Cup® pack demand and lower-than-planned production levels. An increase in single-serve pack obsolescence also adversely impacted gross margin in the quarter.

These adverse impacts were partially offset by the single-serve pack net price realization from price increases taken in fiscal 2011 to offset higher green coffee and other input costs experienced in fiscal 2011 and the first half of fiscal 2012, as well as by a decrease in green coffee costs in the third quarter of fiscal 2012 compared to the prior year period.

GAAP operating margin of 14.9 percent of net sales in the third quarter of fiscal year 2012 decreased from 16.6 percent in the prior year period as a result of the lower gross margin.

Non-GAAP operating margin, which excludes $3.0 million in expenses associated with the SEC inquiry and pending litigation in the quarter, as well as $11.5 million in amortization of identifiable intangibles related to the company’s acquisitions, was 16.6 percent of net sales in the third quarter of fiscal year 2012 compared to 18.4 percent in the prior year period.

The company’s effective income tax rate was 39.6 percent for the third quarter of fiscal year 2012 as compared to a 35.8 percent effective tax rate for the prior year period. The increase is attributable to the extension of the 2011 federal R&D credit in the third quarter of the prior year and lower stock option activity in the current quarter.

Diluted weighted average shares outstanding as of the end of the third quarter of fiscal year 2012 increased to 159.3 million from 153.3 million from the prior year period.

“We are pleased with the strength of our balance sheet including our low debt ratio,” said Frances G. Rathke, GMCR’s chief financial officer. “As part of our ongoing efforts to drive efficiencies in our single-serve pack inventory management and distribution, we have reduced our forward-weeks coverage on hand from our fiscal second quarter.”

“Our higher overall inventory dollar balance in the third quarter of fiscal 2012 compared to the same period in fiscal 2011 is largely driven by increases in Keurig® brewer finished goods resulting from expected first quarter fiscal 2013 holiday demand,” continued Rathke. “In order to ensure brewer availability on retail shelves for the holiday season, all of our anticipated holiday brewer units must be on hand in North America by early October, leading to brewer and accessories inventory build beginning in our fiscal third quarter and continuing into our fiscal fourth quarter.”

In its guidance for its fourth quarter (which contains 14 weeks), the company refined estimates for its fiscal year 2012.

For the fourth quarter of fiscal year 2012, the company anticipates:

Total net sales in the range of $889.9 million to $925.5 million, or net growth of 25 percent to 30 percent, from $711.9 million in the fourth quarter of fiscal year 2011.

Fourth quarter 2012 non-GAAP earnings per diluted share in a range of $0.45 to $0.50 per diluted share, excluding any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry and the company’s pending litigation; amortization of identifiable intangibles related to the company’s acquisitions; and any impact from anticipated company share repurchases.

The company anticipates the fiscal 2012 fourth quarter tax rate to be similar to the 37.7 percent year to date tax rate. Last year’s fourth quarter tax rate was 23.7 percent primarily attributable to the release of valuation allowances related to a $17.7 million capital loss carryforward and a $5.4 million net operating loss carryforward in the fourth quarter of fiscal 2011.

For its fiscal year 2012, the company anticipates:

Total net sales in the range of $3.79 billion to $3.84 billion, or net growth of 43 percent to 45 percent, from $2.65 billion in fiscal year 2011.

Fiscal year 2012 non-GAAP earnings per diluted share in a range of $2.21 to $2.26 per diluted share, excluding approximately $0.20 per share due to the amortization of identifiable intangibles related to the company’s acquisitions; any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry and the company’s pending litigation; any gain from the sale of the Filterfresh business; and any impact from anticipated company share repurchases.

Capital expenditures in the range of $475 to $525 million, down from prior estimates of $525 to $575 million.

Slightly negative free cash flow for fiscal 2012.

The company provided its outlook for its fiscal year 2013:

Total net sales growth in the range of 15 percent to 20 percent over fiscal 2012.

Fiscal year 2013 non-GAAP earnings per diluted share in a range of $2.55 to $2.65 per diluted share, excluding approximately $0.18 per share due to the amortization of identifiable intangibles related to the company’s acquisitions; any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry and the company’s pending litigation; and, any impact from anticipated company share repurchases.

Capital expenditures in the range of $380 million to $430 million.

Free cash flow in the range of $100 million to $150 million.

 

 

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