Green Mountain Coffee Roasters, Inc. Reports Continued Robust Performance for Fiscal 2009 Third Quarter

Source: Green Mountain Coffee Roasters, Inc.
30/07/2009

Waterbury, Vt., Jul. 29 - Green Mountain Coffee Roasters, Inc., today announced its fiscal 2009 third quarter results for the thirteen weeks ended June 27, 2009, reporting outstanding top and bottom line growth.

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Net sales for the third quarter of fiscal 2009 totaled $190.5 million as compared to $118.1 million reported in the third quarter of fiscal 2008, representing an increase of 61% over the same quarter last year.

Net income for the third quarter of fiscal 2009 increased 123% to $14.1 million or $0.36 per diluted share, from $6.3 million or $0.16 per diluted share in the third quarter of fiscal 2008.

During fiscal 2009’s third quarter, 398 million K-Cup^® portion packs were shipped system-wide by all Keurig licensed roasters, up 64% over the year-ago quarter. Supporting continued growth in K-Cup demand, there were 439,000 Keurig brewers shipped during the third quarter of fiscal 2009, up 187% over the same quarter in the prior year.

Lawrence J. Blanford, GMCR’s President and CEO, said, “We are very pleased with our performance this past quarter. Over the last twelve quarters our overall top-line growth has averaged 56%. We believe our consistently strong top-line growth demonstrates that the quality, convenience and value of the Keurig Single-Cup Brewing System have caused a revolution in how consumers prepare and enjoy their coffee.”

Blanford continued, “We are in the right place at the right time with our innovative brewing system which has been so well received in the marketplace. Looking forward, we intend to continue leveraging this opportunity through the successful execution of our enabling initiatives that fuel GMCR’s growth by driving Keurig Single-Cup brewer sales and K-Cup portion pack demand. To date, these initiatives have included the acquisition of the wholesale business and Tully’s® brand from Tully’s Coffee Corporation and the integration of that business into our Specialty Coffee business unit, licensing of Keurig single-cup brewer technology for the “Cuisinart®” and “Mr. Coffee®” brands, and beverage innovations such as the introduction of new K-Cup portion pack products like Café Escapes and Celestial Seasonings Perfect Iced Teas.”

Blanford concluded, “Our goal is to build stockholder value by providing consumers with an extraordinary coffee experience while helping to make a positive difference in the world. This success would not have been possible without the tremendous efforts from all of our employees, the enthusiasm with which our customers and loyal consumers have embraced our system, and the dedication of everyone else who has played an important role in this story. However, there is much more of the story to be told, and, as we look forward, I believe all of these constituencies will continue to play an important role.”

Fiscal 2009 Third Quarter Financial Review

Net Sales

For the Keurig business unit, net sales for the third quarter of fiscal 2009, after the elimination of inter-company sales, were $90.1 million, up 97% from net sales of $45.8 million in the third quarter of fiscal 2008. About half of the increase in Keurig’s net sales this past quarter was due to the 112% increase in K-Cup sales to retailers and to consumers from Keurig.com. Dollar net sales of At Home brewers and accessories contributed approximately one-third of the increase in total Keurig business unit net sales this quarter. In addition, royalty income from the sale of K-Cups^® from third party licensed roasters increased approximately $3 million over last year’s third fiscal quarter and totaled $9 million. Further detail on shipments of Keurig brewers and K-Cup portion packs is provided in the chart accompanying this press release.
For the Specialty Coffee business unit (previously called the Green Mountain Coffee segment), net sales for the third quarter of fiscal 2009 grew 39% to $100.4 million, after the elimination of inter-company sales, as compared to $72.4 million reported in the third quarter of fiscal 2008. Dollar net sales growth was strongest in channels that benefit from sales of K-Cup portion packs including retail reseller, supermarket, consumer direct and office coffee channels. Coffee, tea and hot cocoa pounds shipped increased 40% this quarter over the prior period and totaled 10.9 million pounds.
Sales related to the Tully’s brand represented approximately 5.5% of the 61% increase in consolidated net sales, which are included in the Company’s results for the first time.

Costs, Margins and Income

Cost of sales increased to 66.4% of total net sales compared to 64.0% for the corresponding quarter last year. The increase over last year is primarily due to the significant increase in sales of Keurig At Home Single-Cup brewers, which are sold at approximately cost, as part of the Company’s strategy to drive demand for our K-Cup portion packs by increasing the installed base of Keurig brewers.
Selling, general and administrative expenses (SG&A) improved as a percentage of net sales by 470 basis points to 21.7% from 26.4% in the prior year quarter. This improvement was primarily the result of leveraging selling and organizational resources on a higher sales base.
As a result of this SG&A leverage, the Company increased its operating income by 101% to $22.8 million in the third quarter of fiscal 2009, as compared to $11.3 million reported in the third quarter of fiscal 2008. Operating margins significantly improved as a percentage of net sales to 12.0% from 9.6% in the prior year period.
Interest expense was $1.1 million and $1.4 million in the third quarter of fiscal 2009 and fiscal 2008, respectively.
Income before taxes for the third quarter of fiscal 2009 increased 118% to $21.7 million as compared to $9.9 million reported in the third quarter of fiscal 2008.
The Company’s tax rate was 34.7% as compared to 36.3% in the prior year quarter. The difference was primarily due to higher research and development costs and foreign tax credits.
Net income for the third quarter of fiscal 2009 was $14.1 million or 7.4% of net sales as compared to $6.3 million or 5.4% in the corresponding quarter last year.

Balance Sheet Highlights

Accounts receivable increased 82% year-over-year to $68.5 million at June 27, 2009, from $37.7 million at June 28, 2008, as a result of the strong sales during the third quarter of fiscal 2009.
Inventories increased 64% year-over-year to $103.2 million at June 27, 2009, from $63.1 million at June 28, 2008, reflecting the Company’s effort to ensure both efficiencies and sufficient inventories of brewers and K-Cups for the fourth quarter of fiscal 2009 to meet anticipated strong consumer demand.
Long-term debt increased to $126.0 million at June 27, 2009, from $118.7 million at March 28, 2009 primarily to fund capital expenditures. Cash flow from operations in the third quarter funded this quarter’s increase in inventories and other working capital needs.
During the quarter the Company completed a three-for-two stock split, effected in the form of a stock dividend, and distributed one additional share of its common stock to all shareholders of record at the close of business on May 29, 2009 for every two shares of common stock held on that date. On June 9, 2009, the Company’s stock began trading on a split-adjusted basis with the new number of outstanding shares equaling 1.5 times the pre-split number.

Subsequent Event

On June 29, 2009, the Company exercised the increase option under its existing $225 million revolving credit facility. This increase option was in the form of a $50 million term loan, to be amortized at the rate of 10% annually, commencing on September 30, 2009. All borrowings under the credit agreement, including the outstanding balance under the term loan, are due on December 3, 2012. In addition, on June 29, 2009, the Company amended the credit agreement which resulted in removing the capital expenditures limitation covenant and adjusting the definition of the fixed charge coverage ratio to adjust the capital expenditures included in the definition to 50% of unfinanced capital expenditures. For more detailed information, please see the Amended and Restated Revolving Credit Agreement to be filed with the Company’s Form 10-Q for this quarter.

Business Outlook and Other Forward-Looking Information

Company Estimates for Fiscal Year 2009:

Total consolidated net sales growth of 58% to 61%.
Total K-Cup portion packs shipped system-wide by all Keurig licensed roasters to increase in the range of 60% to 65%.
An operating margin in the range of 9.4% to 9.8%, up from prior estimates of 8.6% to 9.0%, including $5.3 million or $0.08 per diluted share for non-cash amortization expenses related to the identifiable intangibles of both the Keurig and Tully’s acquisitions, and excluding the pre-tax $17 million Kraft patent litigation settlement.
Interest expense of $5.2 million to $5.5 million, down from prior estimates of $5.5 million to $6.0 million.
A tax rate of 37.9% as compared to 38.9% in fiscal 2008, down from prior estimate of 39.5%.
The Tully’s transaction is expected to be neutral to slightly accretive to earnings per share for the first twelve months of ownership, and accretive thereafter. However, for the fourth quarter of fiscal 2009, as the Company integrates the Tully’s business into its Specialty Coffee business unit and invests in additional West Coast capacity, the transaction is expected to be slightly dilutive to the Company's operating margin and earnings per share.
Fully diluted GAAP earnings per share in the range of $1.37 to $1.41 per share, including the pre-tax $17 million or $0.27 per diluted share Kraft patent litigation settlement, and including the non-cash amortization expenses related to the identifiable intangibles of $5.3 million or approximately $0.08 per share. Excluding the Kraft litigation settlement, fully diluted non-GAAP earnings per share in the range of $1.10 to $1.14 per share, up from prior estimates of $0.98 to $1.02 per share.

Company Estimates Relating to Balance Sheet and Cash Flow for Fiscal Year-end 2009:

Capital expenditures for fiscal 2009 in the range of $55 to $60 million.
Depreciation and amortization expenses in the range of $24 to $26 million including $5.3 million for amortization of identifiable intangibles.

First Issue of Company Estimates for Fourth Quarter Fiscal Year 2009:

Total consolidated net sales growth of 60% to 63% as compared to the fourth quarter of 2008.
An operating margin in the range of 10.0% to 10.8% (as compared to 9.6% in the year-ago quarter, and 12.0% in the third quarter of fiscal 2009) including non-cash amortization expenses for identifiable intangibles of approximately $1.5 million. The fiscal fourth quarter operating margin estimates include start-up costs associated with ramping up production capabilities at the Company’s new Knoxville, Tennessee facility and the expectation that the Tully’s wholesale business will be slightly dilutive to earnings per share in the fiscal fourth quarter of 2009.
Fully diluted GAAP earnings per share in the range of $0.30 to $0.34 per share, including the non-cash amortization expenses related to the identifiable intangibles that are estimated to reduce earnings per share by approximately $0.02 per share.

First Issue of Company Estimates for Fiscal Year 2010:

Total consolidated net sales growth of 45% to 50%.
Total K-Cup portion packs shipped system-wide by all Keurig licensed roasters to increase in the range of 65% to 70%.
Fully diluted GAAP earnings per share in the range of $1.70 to $1.80 per share, including the non-cash amortization expenses related to the identifiable intangibles mentioned above of $5.3 million or approximately $0.08 per share.

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)

	Thirteen weeks ended 6/27/09			Thirteen weeks ended 6/28/08			Thirty-nine weeks ended 6/27/09			Thirty-nine weeks ended 6/28/08

Net sales	$	190,509		$	118,120		$	580,841		$	365,442
Cost of sales		126,428			75,626			401,428			234,946
Gross profit		64,081			42,494			179,413			130,496

Selling and operating expenses		28,597			20,620			92,873			69,495
General and administrative expenses		12,708			9,772			33,165			29,277
Patent litigation (settlement) expense		-			773			(17,000	)		2,268
Operating income		22,776			11,329			70,375			29,456

Other income (expense)		(39	)		(25	)		(323	)		(228	)
Interest expense		(1,080	)		(1,376	)		(3,494	)		(4,415	)
Income before income taxes		21,657			9,928			66,558			24,813

Income tax expense		(7,517	)		(3,599	)		(25,051	)		(9,602	)
Net income	$	14,140		$	6,329		$	41,507		$	15,211
		=====			=====			======			======
Basic income per share:
Weighted average shares outstanding		37,591,760			36,139,803			37,132,434			35,803,980
Net income	$	0.38		$	0.18		$	1.12		$	0.42

Diluted income per share:
Weighted average shares outstanding		39,670,046			38,492,987			39,106,086			38,276,990
Net income	$	0.36		$	0.16		$	1.06		$	0.40

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Balance Sheets
(Dollars in thousands)

	June 27, 2009			September 27, 2008

Assets
Current assets:
Cash and cash equivalents	$	4,100		$	804
Restricted cash and cash equivalents		161			161
Receivables, less allowances of $4,288 and $3,002 at June 27, 2009 and September 27, 2008, respectively		68,458			54,782
Income tax receivable		285			-
Inventories		103,238			85,311
Other current assets		4,725			4,886
Deferred income taxes, net		9,967			6,146
Total current assets		190,934			152,090

Fixed assets, net		117,054			97,678
Intangibles, net		37,935			29,396
Goodwill		99,558			73,953
Other long-term assets		4,114			4,531

Total assets	$	449,595		$	357,648

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	37		$	33
Accounts payable		61,491			43,821
Accrued compensation costs		15,687			11,669
Accrued expenses		20,654			14,645
Income tax payable		-			2,079
Other short-term liabilities		3,441			673
Total current liabilities		101,310			72,920

Long-term debt		126,018			123,517
Deferred income taxes, net		22,696			21,691

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding		-			-
Common stock, $0.10 par value: Authorized - 60,000,000 shares; Issued – 42,904,827 at June 27, 2009 and 41,690,466 shares at September 27, 2008, respectively		4,290			4,169
Additional paid-in capital		82,069			61,987
Retained earnings		122,787			81,280
Accumulated other comprehensive loss		(2,078	)		(419	)
ESOP unallocated shares, at cost – 27,194 shares		(161	)		(161	)
Treasury shares, at cost - 5,208,993 shares		(7,336	)		(7,336	)
Total stockholders' equity		199,571			139,520

Total liabilities and stockholders' equity	$	449,595		$	357,648

GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)

	Thirty-nine weeks ended June 27, 2009			Thirty-nine weeks ended June 28, 2008
Cash flows from operating activities:
Net income	$	41,507		$	15,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		13,054			9,851
Amortization of intangibles		3,861			3,609
Loss on disposal of fixed assets		168			187
Provision for doubtful accounts		327			913
Loss on futures derivatives		207			-
Tax benefit from exercise of non-qualified options
and disqualified dispositions of incentive stock options		(163	)		(365	)
Deferred income taxes		(1,940	)		184
Deferred compensation and stock compensation		4,892			4,572
Changes in assets and liabilities:
Receivables		(14,003	)		791
Inventories		(15,640	)		(24,198	)
Income tax payable		(2,364	)		(2,328	)
Other current assets		187			(1,019	)
Other long-term assets, net		587			314
Accounts payable		15,474			(2,092	)
Accrued compensation costs		4,018			3,369
Accrued expenses		5,681			1,215
Net cash provided by operating activities		55,853			10,214

Cash flows from investing activities:
Acquisition of certain assets of Tully’s Coffee Corporation		(41,451	)		-
Capital expenditures for fixed assets		(29,027	)		(28,109	)
Proceeds from disposal of fixed assets		152			319
Net cash used for investing activities		(70,326	)		(27,790	)

Cash flows from financing activities:
Net change in revolving line of credit		2,500			5,800
Proceeds from issuance of common stock		6,351			4,408
Excess tax benefits from equity-based compensation plans		9,123			5,408
Deferred financing fees		-			(794	)
Repayment of long-term debt		(205	)		(54	)
Net cash provided by financing activities		17,769			14,768

Net increase (decrease) in cash and cash equivalents		3,296			(2,808	)
Cash and cash equivalents at beginning of period		804			2,818
Cash and cash equivalents at end of period	$	4,100		$	10

Fixed asset purchases included in accounts payable
and not disbursed at the end of each period:	$	7,399		$	4,877

Noncash financing activity:
Debt assumed in conjunction with acquisition of Tully’s Coffee	$	210		$	-

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Company-wide Keurig brewer and K-Cup portion pack shipments
(Unaudited data and in thousands)

	Q3FY09 13 wks ended 6/27/09	Q3FY08 13 wks ended 6/28/08	Q3 Y/Y Increase	Q3 % Y/Y Increase	Q3 YTD 39 wks ended 6/27/09	Q3 YTD 39 wks ended 6/28/08	Q3 YTD Increase	Q3 YTD % Y/Y Increase
Total Keurig brewers shipped ⁽¹⁾	439	153	286	187%	1,629	668	961	144%
Total K-Cups shipped (system-wide)⁽²⁾	397,962	242,934	155,028	64%	1,183,904	739,821	444,083	60%

⁽¹⁾ Total Keurig brewers shipped means brewers shipped by Keurig to customers in the U.S./Canada.
⁽²⁾ Total K-Cups shipped (system-wide) means K-Cup shipments by all Keurig licensed roasters to customers in the U.S./Canada. These shipments form the basis upon which royalties are calculated by licensees for payments to Keurig. Total K-Cups sold by the brands owned or licensed by the Company comprise historically approximately 58% to 61% of total K-Cups shipped system-wide.