Keurig Green Mountain Beats on Q2 Earnings, Revs - Analyst Blog
May 08 2014 - 2:00PM
Zacks
Specialty coffee retailer Keurig
Green Mountain Inc. (GMCR),
delivered robust second-quarter 2014 adjusted earnings of $1.08 per
share which beat the Zacks Consensus Estimate of 95 cents by 13.7%
and surpassed the company’s guidance of 93–98 cents.
Earnings also surpassed the
year-ago quarter results by 16%. Adjusted earnings excluded
amortization charges of 5 cents. Profit was on the upswing on the
back of solid top-line improvement and enhanced operational
efficiencies.
Consolidated Revenues and
Margins
Keurig Green Mountain’s quarterly
net sales rose 10.0% to $1.1 billion from $1.0 billion in the
comparable prior-year quarter, backed by 8% growth in the sales of
K-cups and Vue packs. Net sales also beat the Zacks Consensus
Estimate of $1.04 billion by 5.7%
Keurig Green Mountain’s quarterly
net sales rose 10.0% to $1.1 billion from $1.0 billion in the
comparable prior-year quarter, driven by strong brewer and portion
pack sales.
Approximately 94% of fourth-quarter
fiscal 2013 net sales was contributed by Keurig Single Cup Brewers,
portion packs and Keurig-related accessories, with the remainder
coming from bagged coffee, fractional packs and the Canadian office
coffee services business.
Net sales of Single Serve
Packs increased 13.0% year over year to $898.2 million due
to a substantial 15 percentage point (pp) increase in volume,
partially offset by mix and pricing headwinds.
Net sales of Brewers and
Accessories increased 9.0% from the comparable prior-year
quarter to $137.6 million mainly driven by 29 pp increase in brewer
sales volume. Volume growth was partially offset by an 18 pp dip
due to unfavorable pricing and product mix.
Net sales of Other
products slipped 20% to $67.3 million due to a demand shift from
traditional coffee package formats to single-serve packs, mainly in
Canada.
Gross profit went up 10.2% to
$457.4 million backed by higher revenues. Gross margin inflated 20
basis points (bps) to 41.5% due to favorable green coffee
costs.
Adjusted operating income went up
21% to $271.8 million. Adjusted operating margin inflated 230 bps
to 24.6% backed by favorable green coffee costs and positive
pricing, top-line growth and cost control
Extension of Partnership
with JM Smucker
Along with the second-quarter
earnings conference call, Keurig Green Mountain announced
distribution partnership with consumer food company The J.
M. Smucker Company (SJM). The new deal is an expansion of
an agreement signed in 2010 for marketing, manufacturing and
selling Smucker brands in GMCR’s K-cups.
Other Financial
Details
During the quarter, Keurig Green
Mountain issued 16.7 million shares as part of The
Coca-Cola Company (KO) transaction. On Feb 27, 2014, the
company closed a previously announced deal with beverage giant,
Coca Cola. Per the deal, Coca Cola took over 10% stake of the
coffee maker for $1.25 billion at $74.98 per share.
In early February, the Keurig owner
announced an agreement with Coca Cola as part of its strategy to
step into the world of cold beverage and soda. Under the 10-year
deal, the former will exclusively make Coca-Cola branded pods for
use on its upcoming Keurig Cold at-home beverage system. The two
companies will also work on the development and launch of this
latest version of Keurig single-cup brewer.
Keurig Green Mountain also entered
into a $700 million accelerated stock repurchase agreement during
the quarter. The company bought back more than 4.3 million common
shares during the quarter under the program. In addition, Keurig
Green Mountain repurchased 15.4 million shares at a total cost of
$936 million during the period.
Guidance for Fiscal
2014
The company lowered its adjusted
earnings per share guidance to a range of $3.63–$3.73 from
$3.75–$3.85. Lowered earnings guidance reflects additional
investment behind the launch of Keurig 2.0 brewers and subsequent
transition of other models to Keurig 2.0 system. Sales expectations
were maintained at high single-digit range from prior year levels.
Free cash flow is estimated in the range of $250–$350 million.
Guidance for Q3 Fiscal
2014
Green Mountain also provided its
outlook for third-quarter 2014. The company expects adjusted
earnings per share in the range of 83–88 cents and sales growth in
the range of high single-digit. The guidance reflects the company’s
continuous efforts to increase brand investments and product
innovations.
GMCR aims to achieve double-digit
growth in annual revenues and earnings growth in the mid-teens over
the long term.
The Zacks Consensus Estimate for
third-quarter and fiscal 2014 earnings are pegged at 89 cents and
$3.74 per share, respectively.
Other Stocks to
Consider
Keurig Green Mountain currently
carries a Zacks Rank #3 (Hold). Another consumer staples stock
worth considering is Mondelez International Inc.
(MDLZ), carrying a Zacks Rank #2 (Buy).
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KEURIG GREEN MT (GMCR): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
MONDELEZ INTL (MDLZ): Free Stock Analysis Report
SMUCKER JM (SJM): Free Stock Analysis Report
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