PEET Peets Coffee & Tea, Inc. (MM)

Green Mountain Coffee Roasters (GMCR) reported robust fourth quarter 2011 results with its quarterly earnings per share (EPS) shooting up 96% year on year to 47 cents. The specialty coffee and coffee maker’s fiscal 2011 earnings soared 113% on a yearly basis to $1.64.

However, both fourth quarter and fiscal 2011 EPS failed to surpass the Zacks Consensus Estimate of 48 cents and $1.66, respectively.

The year-on-year upswing came on the back of success of Keurig Single-Cup Brewing System coupled with strong holiday consumer demand in September

Considering the fourth quarter results, Green Mountain projects first quarter 2012 adjusted earnings per share in the range of 35 cents to 40 cents and the ensuing fiscal 2012 adjusted earnings within $2.55–$2.65 per share. The Zacks Consensus Estimate is pegged at 36 cents for the fourth quarter and $2.63 for fiscal 2012.

Consolidated Revenues and Margins

Green Mountain’s quarterly net sales surged 91% to $711.9 million compared with $373.1 million in the prior-year period, reflecting robust sales growth in total K-Cup portion pack, Keurig brewer and accessory sales.

Almost 83% of the net sales were contributed by the Keurig brewing system and its recurring portion pack sales, including Keurig-related accessory. Rest of the sales came from bagged coffee and office coffee services business.

Green Mountain forecasts net sales growth of 85%-90% in the first quarter 2012. Additionally,  the company also plans to achieve consolidated net sales growth of 60%-65% for fiscal 2012.

On a year-on-year basis, quarterly operating income climbed 128% to $119.1 million, while the full year operating income surged 148% to $428.7 million. Gross margin expanded 400 basis points in the quarter, spurred by price increases on K-Cup portion packs during fiscal 2011.

Other Financial Updates

The company exited the year with cash and cash equivalents of $12.98 million as on September 24, 2011, up from $4.4 million on September 25, 2010.

Inventories increased to $672.2 million from $262.5 million, driven by the company’s effort to have sufficient supply of brewers and K-Cup portion packs for the 2011 holiday season.

While accounts receivable increased 80% due to continuous sales growth and the addition of Van Houtte related accounts receivables, an increase in the long-term revolver increased the debt outstanding to $582.9 million as on September 24, 2011 from $354.5 million as on September 25, 2010.

Our Take

While Green Mountain’s sound position in a prospering industry and its strategic acquisitions look promising, coffee’s vulnerability to highly volatile global prices and presence of tough competitors like Peet's Coffee & Tea Inc. (PEET) and Starbucks Corporation (SBUX) concern us.

Currently, we prefer to rate the stock as Neutral. Green Mountain holds the Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.

 
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