Will Green Mountain Coffee Roasters Brew an Earnings Beat?

Green Mountain Coffee Roasters  (NASDAQ: GMCR  )  is expected to report fourth quarter and annual results after market Wednesday. The company's shares have risen over 168% in the past year but dropped over 20% in the past quarter. Will the fourth quarter send prices down further? 

The company's main focus is on the Keurig brewing machines and associated K-cup pods. Green Mountain lost two key K-cup patents last fall, which opened the path for competing products from Whole Foods  (NASDAQ: WFM  )   and Kroger.   

Investors would love to watch Green Mountain earnings reports for the specific number of K-cups sold. But Green Mountain stopped divulging that metric years ago in favor of percentage growth. But there are still a few sales metrics to watch for signs of health. 

Source: Chun Yip So

Quarterly estimates to beat
But first quick of what's expected for Green Mountain's fourth quarter and fiscal year. 

Analysts estimate revenues of $964 million with earnings per share of $0.75 for the fourth quarter and $4.3 billion in revenues and $3.25 for the year. The company has beat or met revenue estimates for four of the past five quarters with last quarter as the sole miss. Green Mountain has met or beat EPS estimates for all five quarters.

Green Mountain predicts fourth quarter net sales growth of 11% to 15% and an EPS range of $0.69 and $0.74. The annual outlook includes net sales growth of 13% to 14% and EPS between $3.19 and $3.24. 

K-cup sales
Investors and analysts will compare this report's key metrics to the same period last year.   

Green Mountain reported fourth quarter sales of about $947 million last year and $700.2 million -- or about 74% -- came from single service packs or K-cups. Sales of the cups were up 47% over the prior year.  The sales volume was up 50% but the company doesn't break out specific unit numbers.    

Net sales for fiscal 2012 were about $3.9 billion and K-cups accounted for 70% of those sales. K-cups sales were 49% and sales volume was up 49%.   

But the patent expirations had barely kicked in by last year, so it's also worth looking to the previous quarter, or the third quarter of fiscal 2013, for a potential comparison. Total net sales were $967.1 million while single service cups had sales of $751.7 -- or about 78% of total sales. K-cup sales were up 18% and sales volume was up 21%. 

Brewer sales
Brewers play a smaller role in Green Mountain's overall sales. But the year over year growths -- or losses -- are an interesting metric to check. 

Here's a look at brewer and accessories sales for the past four quarters:

Quarter

Sales (millions) 

YoY Growth 

4Q12

$150.1

35%

1Q13

$377.7

14%

2Q13

$126.8

-13%

3Q13

$133.1

-6%

Source: Company press release 

Losing sales in brewers doesn't matter as much as long as the K-cup sales continue to grow. But if both numbers start falling, Green Mountain Coffee Roasters will have a serious problem on its hands. 

K-cup competition from Whole Foods
Green Mountain shares dropped 10% last month after grocery chain Whole Foods launched its own K-cups. According to Bloomberg, a 12-pack of Whole Foods' organic K-cups will retail for $8.99 and come in five flavors. Green Mountain K-cups cost about $17 for a 24-pack on the company's website but cheaper deals exist with coupons or through Amazon deals.  

There was a similar drop last year when Kroger announced plans to release its private label K-cups. But I argued at that time that the increased competition wouldn't do much to hurt Green Mountain's K-cup sales. The price difference is typically negligible and Keurig users have had enough time to develop preferred brands within the Green Mountain owned or partnered K-cups.  But Whole Foods' K-cups should sell well for the company considering its loyal customer base. 

Foolish final thoughts
Green Mountain Coffee Roasters has a solid history of meeting or beating estimates. But it's worth a look into the k-cup and brewer sales metrics to see if there's deceleration. 


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  • Report this Comment On November 19, 2013, at 4:48 PM, canuckeconomist wrote:

    OK, so let me see if I get this.

    1. The company's shares have appreciated by168percent since last year; (so the price would be roughly 2.7 times what it was the previous year).

    2. Sales of Keurig machines are lower in absolute terms than they were in the previous year for the past two quarters;

    3. Analysts estimate revenues of $964 million quarter and Green Mountain reported fourth quarter sales of about $947 million last year - this is a less than 2 percent sales growth forecast.

    4. The environment has become more competitive for them with the loss of patents and the advent of another reputable company getting into direct competition with them; which you would think would the effect of lowering margins.

    5. They missed their announced targets last month

    So, I don't get this, if the company will only increase sales by about 2 percent; and competitive forces are pushing margins; why in the world would the company have gone up to over 2.5 times its price last year?

    Did I miss something here?

    Do the dear Fools have a recommendation? Sounds like a negative recommendation to me, do I read you right?

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