Green Mountain Coffee Roasters (
GMCR
) announced its Q4 and fiscal 2012 earnings on Tuesday as the
company surprised the market with its impressive set of
numbers. Total revenues surged 33% to $946 million helped by
strong single serve pack and brewer sales. The company also
benefited from an extra week in its accounting which added $90
million to the top-line.
Revenues for its single serve packs (mostly K-Cups) jumped 47%
to $700 million helped by a 50% rise in volumes offset partly by a
weaker pricing and product mix. Green Mountain's net income
rose 20% to $92 million. The management is confident of
posting a 15-20% revenue growth for the upcoming fiscal. The news
cheered the investors as the stock jumped 25% in the after hours
trading.
Brewer Volumes Rising Again
Green Mountain sold a total of 2 million brewers in the quarter,
up 20% on a sequential basis. Brewer unit volume sales peaked at
4.2 million units in the Oct'11-Dec'11 quarter but dived sharply to
1.3 million units in the next quarter. Since then, the company has
done well to rebound the brewer volumes.
However, amid all the ebullience, it is important to note that
Vue
sales (brewers and packs combined) halved to $9.6 million from
$20.0 million in the third quarter. This is detrimental to the
company's future profitability in a couple of ways:
(a)
Vue
brewer is positioned as a premium product and is priced much higher
than the traditional brewers. The original Keurig K-Cup brewers
were generally sold at price close to its cost to increase the
brewer adoption rate and were themselves not profitable. Low
adoption of
Vue
brewers would imply a loss of an opportunity to generate profits
through the sale of brewers.
(b) Any third party company which wants to introduce its
Vue
packs will have to pay royalties to Green Mountain (unlike that for
K-Cups). Thus, lower adoption rates would also imply an opportunity
lost to generate additional royalty revenues.
See our full analysis of GMCR here
Margins Getting Squeezed
Gross margin decreased to 33.4% vs 35.7% in the previous
year quarter. The company attributed the decline primarily to a
rise in manufacturing costs and investments related to the
introduction of
Vue.
Furthermore, we expect the gross margins to erode further as the
effect of patent expiration takes place from the first quarter of
the fiscal 2013 (i.e. from October 2012).
Two of the company's patents expired in September which paved
the way for other competitors and private labels to introduce their
own, lower priced K-Cups without having any sort of an obligation
to pay royalty to Green Mountain. The magnitude of decline
will determine how much pricing the company's own single cup packs
can sustain in an intensely competitive environment.
We have a price of $29.40 for Green Mountain Coffee
Roasters
, but are in the process of revising our estimates to
incorporate the latest earnings.
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