Green Mountain Coffee Roasters (UNKNOWN:GMCR.DL) had plenty to prove as it posted quarterly financials after Wednesday's market close. One researcher pointed to Green Mountain's K-Cup portion packs losing market share to private labels. Analysts also were whittling down their top-line targets, defying Green Mountain's own guidance calling for revenue growth in the low double digits.
Well, Green Mountain was able to laugh on Wednesday, but it may not get the last laugh.
Looking back, the quarter was a blowout in every sense. Net sales climbed 11% to $1.05 billion, but if you back out the extra week in the prior year's fiscal fourth quarter, it was actually a 22% uptick. Revenue for those K-Cups that were supposedly left for dead rose 11% -- or 23% without the additional week. Brewer sales grew even faster, climbing at a 27% clip for the period. Usually, seeing low-margin brewers outpace K-Cups is a sign for margin contraction, but that didn't happen. Coffee prices have fallen sharply at Green Mountain, something that investors saw on display at Starbucks (NASDAQ:SBUX) three weeks ago. The baron of baristas saw operating profits more than double the 13% revenue gain, partly on the improving dynamics of coffee costs relative to what Starbucks can sell it for at retail.
Improving margins find Green Mountain's adjusted earnings soaring 39% to $0.89 a share -- or 56% without that pesky extra week in fiscal 2012. Analysts were only holding out for a profit of $0.75 a share.
If the story ends there, it would be the ideal point for Green Mountain to drop the mic and walk offstage with a big ole smile on its face. Unfortunately, Green Mountain's outlook isn't so rosy. It sees revenue in the new quarter climbing in the low-to-mid single digits. Analysts expected a 7% top-line growth. Its guidance calling for adjusted earnings to rise 12% to 18% during the quarter -- or $0.85 a share to $0.90 a share -- is also short of where the pros were perched, at $0.96 a share. After years of growing at a healthier clip than Starbucks, we're now seeing the retail coffee chain running faster than the Keurig maker.
In other words, the analysts' fears and reports about decelerating growth weren't as wrong as they were early.
Green Mountain still expects to make up some of that ground later in the year. Its target of $3.75 to $3.85 a share in adjusted earnings for the new fiscal year is in line with the $3.78 a share that Wall Street's forecasting. Green Mountain sees revenue growing in the high single digits for fiscal 2014 -- a break from the historic mid-teens clip it's aiming for in the next few years -- but that also isn't far off the mark from the 9.6% growth in net sales that analysts are targeting. Investors will always place more weight on the current quarter than the entire year, and understandably so, but Green Mountain came armed for the bears.
It introduced a $0.25-a-share quarterly dividend. That translates into a 1.6% yield as of Wednesday's close. That may not seem like much, but it's better than the 1.3% rate for Starbucks.
Green Mountain is also powering up its buyback efforts. The java jobber has spent $362 million on buybacks since last summer on its way to completing its original $500 million authorization. That's worked out well, especially since the average buyback price is $35.82 per share. Now it's going to authorize another $1 billion in repurchases. Buybacks will naturally help Green Mountain live up to its earnings-per-share targets, but it'd better make sure that the decelerating revenue growth that it's eyeing for the current quarter reverses itself if it wants to get the ultimate final laugh here.