Heading into this afternoon's quarterly report out of Green Mountain Coffee Roasters (GMCR.DL), I offered up four things to watch in the report. Well, it was a blowout report by nearly every measure, and shares are soaring after hours. Let's break down the Keurig company's fiscal fourth quarter by taking a look back at the four things worth watching.
1. Green Mountain needs to live up to expectations
Fiscal 2012 had been a disappointment for Green Mountain before today's report. The company would hose down its profit targets or clock in at the low end of its seemingly conservative sales projections. Inventory spikes were out of control. Play back any of Green Mountain's conference calls from earlier in the fiscal year and you could almost hear David Einhorn whispering "I told you so" in the background.
Well, the bulls finally nabbed a winning quarter. Net sales soared 33% to $946.7 million, fueled by a 47% spike in K-Cups and a 30% increase in brewers and accessories. Adjusted earnings soared 36% to $0.64 a share. Analysts were holding out for a profit of just $0.48 a share on a 27% uptick in net sales.
Now, don't say "accelerating growth" for fear of jinxing this. There was an extra week during this particular period. Back it out, and net sales and adjusted earnings would have climbed just 20% and 21%, respectively. This makes sense, given the 21% boost in net sales that Green Mountain reported three months ago, and the 15% to 20% top-line growth in fiscal 2013 that the company continues to champion. However, analysts knew about the extra week in modeling their forecasts, so don't let the extra week undersell the magnitude of the blowout.
The pros got punked.
2. Rivo and Keurig Vue need to be off to encouraging starts
The original Keurig platform will continue to serve Green Mountain well over time. Despite the expiration of pertinent K-Cup patents back in mid-September, the company still has deals in place with Starbucks (SBUX -0.83%) and Dunkin' Brands (DNKN), and it even got into the private-label market after striking a deal to provide Costco (COST 0.08%) with its own Costco Kirkland-branded K-Cups.
It still doesn't hurt to look out to the future, just as Starbucks recently introduced its Verismo machine. Green Mountain, for its part, introduced the Keurig Vue earlier this year, and a partnership with Italy's Lavazza birthed the Keurig Rivo espresso maker. The news isn't exactly encouraging on the Vue front. Green Mountain generated just $9.6 million in Vue-related revenue and recently had to lower Vue brewer prices. The jury's still out on the Rivo, as its been available at select Bloomingdales for just a few days.
3. Everyone wants a peek into incoming CEO Brian Kelley's playbook
Green Mountain's decision last week to hire Coca-Cola (KO 1.11%) executive Brian Kelley as its new CEO is inspired. He was tapped to head up Coca-Cola's North American refreshment business and its 68,000 employees back in January. Surely, he must feel confident about Green Mountain's future to jump from that steady ship to the S.S. Keurig.
He doesn't start until next week, so there wasn't a lot of color on what he would change at the company. Then again, given the momentum established with its robust quarterly report, it may not need a whole lot of tweaking to continue its winning ways.
4. Green Mountain needs to justify its recent gains
Green Mountain is raising its bottom-line outlook for the new fiscal year. The Keurig boss now sees an adjusted profit between $2.64 and $2.74 a share over the next four quarters.
Worrywarts who have rightfully dogged the company for its pesky inventory levels -- perpetually growing at a headier clip than net sales -- will have to bite their lips this time. Inventory's 14% increase, and a reasonable 17% uptick in accounts receivable, didn't surpass the adjusted 20% growth in net sales.
Things aren't perfect at Green Mountain. After posting positive free cash flow through the first nine months of the year, it did dip into the red for the final quarter -- though it did remain positive for the entire fiscal year. Net sales growth should continue to decelerate, too, and we also have the uncertainties over the fiscal 2012 introductions and how the Keurig workhorse will play out in these patent-free K-Cup days.
However, Green Mountain had far more good news than bad this time, and that's the best way to wake up Wall Street.
Brew-ha-ha
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