Green Mountain Brews Profits - Analyst Blog
02 February 2012 - 10:00PM
Zacks
Green Mountain Coffee
Roasters (GMCR) reported robust first-quarter 2012 results
with its adjusted earnings of 60 cents per share, which surged 233%
year on year from 18 cents in the prior-year quarter. The adjusted
earnings also exceeded the Zacks Consensus Estimate of 36 cents per
share.
The adjusted earnings exclude the
acquisition-related expenses, expenses related to SEC inquiry,
amortization of identifiable intangibles, and gain on sale of
subsidiary. Including these one-time items, earnings soared to 66
cents per share as compared to 2 cents per share in the prior-year
quarter.
The year-on-year upswing came on
the back of success of Keurig Single-Cup Brewing System, supported
by owned and non-owned beverage brands in K-Cup packs coupled with
strong holiday sales.
In comparison with the first
quarter results, Green Mountain projects second quarter 2012
adjusted earnings per share in the range of 60 cents to 65 cents
and the ensuing fiscal 2012 adjusted earnings within $2.55–$2.65
per share. The Zacks Consensus Estimate for the next quarter is
pegged at 74 cents and $2.57 per share for fiscal 2012.
Consolidated Revenues and
Margins
Green Mountain’s quarterly net
sales surged 102% to $1,158.2 million compared with $574.1 million
in the prior-year period, reflecting robust sales growth in total
K-Cup portion pack, Keurig brewer and beverage holiday and
accessory sales. Sales exceeded the Zacks Consensus estimate of
$1,062.0 million.
Almost 90% 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 45%-50% in the second 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, gross
profit increased to $336.6 million, representing gross margin of
29.1% of net sales, compared to $143.6 million, representing 25.0%
in the corresponding first quarter of 2010, spurred by price
increases on K-Cup portion packs during fiscal 2011and due to a
higher percentage of portion-pack related revenue in the
quarter.
Quarterly operating income climbed
to $145.8 million from $23.3 million in the prior-year quarter.
Operating margin improved to 12.6% from 4.1% in the prior-year
quarter, owing to strong gross margin as well as SG&A leverage.
Adjusted margin improved to 13.6% of net sales in the first quarter
of 2012 from 7.7% in the prior-year period.
Other Financial
Updates
The company exited the quarter with
cash and cash equivalents of $84.1 million as on December 24, 2011,
up from $13.0 million on September 24, 2011.
Green Mountain expects capital
expenditures in the range of $630.0 million to $700.0 million for
fiscal year 2012.
Inventories hiked to $606.7 million
at the end of December 24, 2011 compared to $269.1 million at the
end of December 25, 2010. The year-over-year increase comprised a
rise in raw materials and finished goods inventory with
approximately 66% of the escalation due to K-Cup packs on hand.
Accounts receivable increased 73%
due to continuous sales growth. Debt outstanding decreased to
$479.7 million at the end of December 24, 2011 from $1,085.0
million at the end of December 25, 2010, as a result of paying down
the long-term revolver.
On October 3, 2011, Green Mountain
sold all the outstanding shares of Van Houtte USA Holdings, Inc.,
also known as the Van Houtte U.S. Coffee Service business or
“Filterfresh” business, resulting in a gain of $26.3 million.
Our Take
The company is expected to continue
to add new brands to the Keurig Single-Cup brewing system, which
will help drive incremental brewer adoption, and increase system
awareness.
Although Green Mountain enjoys a
sound position in a prospering industry with its strategic
acquisitions holding out promises, 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, Green Mountain holds the
Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
Over the long term, we prefer to rate the stock as Neutral.
GREEN MTN COFFE (GMCR): Free Stock Analysis Report
PEETS COFFE&TEA (PEET): Free Stock Analysis Report
STARBUCKS CORP (SBUX): Free Stock Analysis Report
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