Green Mountain Coffee Roasters (GMCR) registered robust third quarter 2010 earnings of 19 cents a share that shot up by 58% from 12 cents posted in the year-ago period. Earnings also beat the Zacks Consensus Estimate by a penny. The upswing came on the back of success in Keurig Single-Cup Brewing System and the acquisition of Diedrich Coffee Inc.
On a reported basis, including one-time items, earnings came in at 13 cents, up 8% from 12 cents delivered in the year-earlier period.
Green Mountain projects fourth quarter adjusted earnings in the range of 18–20 cents a share, and ensuing fiscal 2010 adjusted earnings of 69–71 cents. Fiscal 2010 adjusted earnings include 7 cents a share as non-cash amortization expenses.
For 2011, Green Mountain expects earnings in the range of $1.15 to $1.20 a share, reflecting 62%–74% annual growth compared with 2010. Fiscal 2011 earnings estimates include about 9 cents a share of non-cash amortization expenses. The current Zacks Consensus Estimate is 69 cents and $1.18 per share for fiscal 2010 and 2011, respectively.
Consolidated Revenue and Margins
Green Mountain’s quarterly net sales jumped 64% to $311.5 million compared with $190.5 million in the prior-year period, reflecting robust sales growth in total K-Cup portion pack, Keurig brewer and accessory sales. This makes the company’s 11th consecutive quarter of overall top-line growth of above 40%.
Green Mountain forecasts total net sales growth of 58%–63% in the fourth quarter to achieve fiscal 2010 total net sales growth of 66%–68% annually, up from the prior estimate of 62%–65% growth. The company expects total net sales to surge 44%–50% annually in fiscal 2011.
On a year-ago basis, operating income climbed 85% to $42.2 million and operating margin expanded 150 basis points in the quarter.
The company anticipates adjusted operating margin of 13.0%–13.5% to reach the fiscal 2010 adjusted operating margin goal of 12.1%–12.5%.
Segment Details
In terms of segment, Keurig’s net sales advanced 74% to $157.2 million, compared with $90.1 million in the prior-year period. Specialty Coffee net sales progressed 54% to $154.3 million compared with $100.4 million in the year-ago quarter.
Other Financial Updates
During the quarter, Green Mountain completed a three-for-one stock split.
Due to the Diedrich acquisition, the company’s cash and short-term cash investments plunged to $10 million in the quarter compared with $144.2 million at the end of previous quarter. Green Mountain also borrowed a term loan of $140 million resulting in a long-term debt increase of $271.4 million in the quarter. Long-term debt was $72.7 million at the end of previous quarter.
In the quarter, Green Mountain’s inventories moved up 80% year over year to $186.3 million for sustaining optimum inventories levels of brewers and K-Cups in the fourth-quarter.
For fiscal 2010, the company expects to incur capital expenditures in the range of $120–$140 million.
Green Mountains’ shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
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