WATERBURY, Vt. – Green Mountain Coffee Roasters, Inc.,, a leader in specialty coffee and coffee makers with its innovative Keurig brewing technology, yesterday announced its results for the 13 weeks ended December 28, 2013.
“We delivered 4% sales growth and experienced our best holiday season ever,” said Brian P. Kelley, GMCR’s President and CEO. “We achieved record brewer volume, revenue and retail sell-through despite a challenging holiday season for many retailers, demonstrating the growing popularity of our Keurig brewing system among North American consumers.
We believe these results will drive continued strong Keurig brewer installed base growth and future portion pack consumption. We’re very pleased with our solid gross margin progress, our 26% non-GAAP earnings growth and our $212 million in free cash flow in the quarter.”
The Company’s 4% sales growth in the first quarter of fiscal year 2014 compared to the prior year period includes the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 0.8% (click to enlarge).
As shown in the table above, approximately 94% of consolidated first quarter fiscal year 2014 net sales were sales of Keurig Single Cup Brewers, packs, and Keurig-related accessories, with the remainder of net sales consisting primarily of bagged coffee, fractional packs and the Company’s Canadian office coffee services business.
Packs The 8% increase in pack-related net sales over the prior year period was driven by a 12 percentage point increase in unit volume offset by a 2 percentage point decrease due to net price realization and a 2 percentage point decrease due to pack product mix.
Brewers and Accessories
For the quarter, a record 5.1 million Keurig system brewers were sold including 4.9 million sold by GMCR with 0.2 million reported sold by GMCR’s licensed brewer partners.
The decrease in brewer and accessory net sales was driven by a 4 percentage point increase due to brewer sales volume offset by a 2 percentage point decrease due to brewer net price realization, a 2 percentage point decrease due to brewer product mix and a 1 percentage point decrease due to a decline in accessory net sales. Accessory net sales declined by $5.2 million, or 21%, in the period.
Sales of other products declined $17.9 million, or 18%, in the quarter over the prior year period primarily due to the continuing demand shift from traditional coffee package formats to packs, particularly in Canada.
In the first quarter of fiscal year 2014, gross profit increased 11% and gross margin improved 220 basis points to 33.5% from 31.3% in the prior year period.
The following table quantifies the changes in gross margin period to period:
- GAAP operating income grew by 24%, representing 16.3% of net sales in the first quarter of fiscal year 2014, up from 13.6% in the prior year period.
- Non-GAAP operating income grew by 22%, representing 17.2% of net sales in the first quarter of fiscal year 2014, up from 14.5% in the prior year period.
- The Company’s effective income tax rate was 36.6% for the first quarter of fiscal year 2014 as compared to 38.4% for the prior year period.
- Diluted weighted average shares outstanding as of the end of the first quarter of fiscal year 2014 decreased 1% to 151.6 million from 152.7 million in the prior year period in part as a result of the Company’s share repurchases under its previously announced share repurchase program.
Balance Sheet & Cash Flow Highlights
“Our strong earnings growth and business fundamentals are making it possible for us to deliver strong free cash flow and to repurchase shares, all while reinvesting in the growth of our business,” said Frances G. Rathke, GMCR’s Chief Financial Officer. “We ended the first quarter of fiscal year 2014 with a net cash position of $90 million, with cash and cash equivalents exceeding outstanding debt, capital lease and financing obligations.”
(1) Free cash flow is calculated by subtracting capital expenditures for fixed assets from net cash provided by operating activities as reported in the unaudited statement of cash flows.
Share Repurchase From the inception of its Board authorized share repurchase program in August of 2012 through today the Company has repurchased a total of 10.5 million shares at a total cost of $387 million and an average price of $36.92.