Green Mountain Coffee Roasters, Inc. Reports Fiscal Year 2012 First Quarter Results

Green Mountain Coffee Roasters, Inc., (GMCR) (NASDAQ: GMCR), a leader in specialty coffee and coffee makers, announced its fiscal year 2012 first quarter results for the thirteen weeks ended December 24, 2011.

Performance Highlights

First Quarter Fiscal Year 2012

• Net sales of $1,158.2 million, up 102% over net sales of $574.1 million in the year-ago quarter
• GAAP EPS of $0.66 compared to first quarter fiscal year 2011 GAAP EPS of $0.02; non-GAAP EPS of $0.60 increases 233% over $0.18 in the year-ago quarter
• GAAP operating income of $145.8 million compared to first quarter fiscal year 2011 GAAP operating income of $23.3 million; non-GAAP operating income of $158.0 million improves 258% over the year-ago quarter
• GAAP net income of $104.4 million compared to first quarter fiscal year 2011 GAAP net income of $2.4 million; non-GAAP net income of $96.0 million increases 264% over the year-ago quarter

“North American consumers continue to embrace the convenience, choice and consistent experience provided by the Keurig^® Single Cup Brewing system and, as evidenced by our strong holiday sales, are encouraging friends and family to do the same,” said Lawrence J. Blanford, GMCR's president and CEO. “We believe our sales in the period were, in part, the result of our efforts to ensure strong in-stock positions on store shelves as well as due to growing awareness of the Keurig^® brand which was aided by our nationwide advertising and strong in-store merchandising.”

With increasing consumer adoption, the Keurig^® Single Cup Brewing system, supported by GMCR’s growing family of owned and non-owned beverage brands in K-Cup^® packs, is changing the way North America brews its coffee and other beverages.

“The value of single-serve, at-home brewing seems to be resonating with consumers,” added Blanford. “According to NPD Group, in calendar 2011, sales of single-serve coffee makers accounted for 50% of the total dollars consumers spent overall in the coffee maker category. The Keurig^® Single Cup Brewing system has set the bar for consumers’ single-cup experience, and drove an estimated 35% unit share of all coffee makers during the October through December 2011 period according to NPD.”

First Quarter Fiscal Year 2012 Financial Review

Net Sales (in millions)

• Approximately 90% of consolidated first quarter fiscal year 2012 net sales were from sales of Keurig^® Single Cup Brewers, K-Cup^® 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.
  • GMCR sold 4.0 million Keurig^® Single Cup Brewers during the first quarter of fiscal year 2012. This brewer shipment number does not account for consumer returns.
  • We estimate that the combination of brewer shipments from GMCR and its licensed partners resulted in shipments of 4.2 million Keurig^® Single Cup Brewers in the first quarter of fiscal year 2012.
  • The year-over-year increase in K-Cup^® pack sales was driven by an 81 percentage point increase in K-Cup^® pack sales volume, a 21 percentage point increase in K-Cup^® pack net price realization due to price increases implemented during fiscal year 2011 to offset higher green coffee and other input costs, and a 13 percentage point increase in K-Cup^® pack net sales due to the acquisition of Van Houtte.
• Net sales from Van Houtte, acquired in December 2010 and part of the Canadian business unit, contributed approximately $111.9 million to consolidated net sales in the first quarter of fiscal year 2012, an increase of $103.1 million compared to the prior year period.
• First quarter of fiscal year 2012 gross profit of $336.6 million represented gross margin of 29.1% of net sales compared to 25.0% for the corresponding quarter in fiscal year 2011.
  • The improvement is due to the net price realization from price increases on K-Cup^® packs implemented during fiscal year 2011 to offset higher green coffee and other input costs, a shift in the Company’s sales mix due to K-Cup^® packs increasing as a percentage of overall sales and the net price realization from price increases on Keurig^® Single Cup Brewers implemented to offset higher input costs. These benefits offset higher green coffee costs in the first quarter of fiscal year 2012, and higher sales return expenses associated with Keurig^® Single Cup Brewers.
• GAAP operating margin improved to 12.6% of net sales in the first quarter of fiscal year 2012 from 4.1% in the prior year period as a result of selling, operating, and general and administrative expense leverage. During the first quarter of fiscal year 2011, general and administrative expense included approximately $8.7 million in transaction-related expenses due to the Van Houtte acquisition and $6.0 million in legal and accounting expenses associated with the SEC inquiry, the Company’s internal investigation and pending litigation.
• Non-GAAP operating margin, which excludes $0.7 million in expenses associated with the SEC inquiry and pending litigation, as well as $11.5 million in amortization of identifiable intangibles related to the Company’s acquisitions, improved to 13.6% of net sales in the first quarter of fiscal year 2012 from 7.7% in the prior year period.
• On October 3, 2011, the Company 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.
• The Company’s effective income tax rate was 37.7% for the first quarter of fiscal year 2012 as compared to an 80.5% effective tax rate for the prior year period. The difference is primarily attributable to the non-deductible acquisition-related costs recognized in the first quarter of fiscal year 2011 related to the Van Houtte acquisition.
• Diluted weighted average shares outstanding increased 8.4% to 159.4 million in the first quarter of fiscal year 2012 from 147.0 million in the first quarter of fiscal year 2011 primarily due to the issuance of approximately 10.1 million shares on May 11, 2011 from a public offering and concurrent private placement to Luigi Lavazza S.p.A. pursuant to its preemptive rights.

Balance Sheet Highlights

• Accounts receivable increased 73% year-over-year to $412.5 at December 24, 2011, from $238.1 million at December 25, 2010, reflecting continued sales growth.
• Also reflecting continued growth in the business, inventories were $606.7 million at December 24, 2011 compared to $269.1 million at December 25, 2010. The year-over-year increase is comprised of:

   

  • a $175.2 million, or 266%, increase in raw materials most notably from an increase in green coffee volume and a 44% average green coffee cost increase;
  • a $162.4 million, or 80%, increase in finished goods inventory with approximately 66% of the increase due to K-Cup^® packs on hand.
• On October 3, 2011, the sale of the Filterfresh business to ARAMARK Refreshment Services, LLC was completed in exchange for $149.6 million in cash. Approximately $4.4 million of cash was transferred to ARAMARK as part of the sale of Filterfresh, resulting in a net cash inflow related to the Filterfresh sale of $142.6 million, net of transaction costs of $2.6 million. The purchase agreement with ARAMARK contained a covenant whereby the Company was required to re-pay a portion of the proceeds received from ARAMARK in the event of certain conditions. Subsequent to December 24, 2011, the covenant was settled under which the Company paid ARAMARK $7.4 million.
• Debt outstanding decreased to $479.7 million at December 24, 2011 from $1,085.0 million at December 25, 2010 as a result of paying down our long-term revolver. Proceeds from the public offering and concurrent private placement to Luigi Lavazza S.p.A. on May 11, 2011 and from the sale of Filterfresh on October 3, 2011 were used to reduce our outstanding debt obligations.

Business Outlook and Other Forward-Looking Information

Company Estimates for Fiscal Year 2012*

“Our brewer sales in the first quarter of fiscal year 2012 were above our expectations, with approximately 4.2 million brewers sold by the combination of GMCR and our licensed partners. That total is more than half of the 6.5 million brewers sold in all of our fiscal year 2011,” said Blanford. “As these brewers come into use, we expect them to have a positive impact on future portion pack demand. Given the challenge of estimating sales in such a dynamic environment, in the coming months we will be working to ensure we apply appropriate rigor and analyses to confirm and refine our modeling assumptions and estimates of forward demand. In the meantime however, we are reaffirming our prior revenue and earnings estimates for fiscal year 2012.”The Company reaffirmed its prior estimates for its fiscal year 2012, including:

• Total consolidated net sales growth of 60% to 65% from fiscal year 2011.
• Fiscal year 2012 non-GAAP earnings per diluted share in a range of $2.55 to $2.65 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 gain from the sale of the Filterfresh business.
• Capital expenditures in the range of $630.0 million to $700.0 million for fiscal year 2012.

* Referenced brewer shipments do not account for returns.

Company Estimates for Second Quarter Fiscal Year 2012

The Company is providing initial estimates for the second quarter of fiscal year 2012:

• Net sales growth of 45% to 50%.
• Fully diluted non-GAAP earnings per share in the range of $0.60 to $0.65 per share excluding any acquisition-related transaction expenses; legal and accounting expenses related to the SEC inquiry and the Company’s pending litigation; and amortization of identifiable intangibles related to the Company’s acquisitions.

Of note when comparing growth rates for fiscal years 2011 and 2012: second quarter fiscal year 2011 results reflect the impact of the acquisition of Van Houtte completed during first quarter of fiscal 2011; a price increase on K-Cup® packs announced in the first quarter of fiscal year 2011 and completed in the second quarter of fiscal year 2011 across all channels was a meaningful contributor to the second quarter fiscal year 2011’s growth; and, year-over-year comparisons will need to consider GMCR’s sale of its Filterfresh business in October 2011 which contributed approximately $91 million in revenue during fiscal year 2011.

The Company’s estimates for its second quarter fiscal year 2012 reflect lower portion pack and brewer growth rates compared to its first quarter fiscal year 2012 following the extraordinary growth driven by holiday purchases during first quarter fiscal year 2012 and the established seasonality of the business.

About Green Mountain Coffee Roasters, Inc.

As a leader in specialty coffee and coffee makers, Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR), is recognized for its award-winning coffees, innovative Keurig^® Single Cup brewing technology, and socially responsible business practices. GMCR supports local and global communities by offsetting 100% of its direct greenhouse gas emissions, investing in sustainably-grown coffee, and donating at least five percent of its pre-tax profits to social and environmental projects.

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