Keurig Green Mountain, Inc.
May 7, 2014
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Keurig Green Mountain Reports Second Quarter Fiscal Year 2014 Results; Updates 2014 Outlook; Board Authorizes Additional $1 Billion Share Repurchase

WATERBURY, Vt.--(BUSINESS WIRE)-- Keurig Green Mountain, Inc., (Keurig) (NASDAQ: GMCR), a leader in specialty coffee, coffee makers, teas and other beverages with its innovative brewing technology, today announced its results for the 13 weeks ended March 29, 2014.

Performance Highlights

"Double digit sales and earnings growth on the heels of a strong holiday season demonstrates the continued opportunity to grow our Keurig system in North America in a very competitive environment," said Brian Kelley, Keurig's President and CEO. "During the quarter, we drove strong brewer and portion pack net sales and accelerated our installed base. In addition, disciplined cost controls drove operating profit and margin growth that translated into solid earnings and a significant increase in free cash flow.

"At the end of the quarter, our balance sheet was very strong, with $1.1 billion in cash, even after we returned nearly $800 million of cash to shareholders in the quarter in the form of dividends and share repurchases, including purchases made through an accelerated stock repurchase agreement," continued Kelley. "We are very pleased with our performance and continue to be optimistic about the momentum in our business and the opportunities in front of us."

The Company's 10% net sales growth includes the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 1%.

Second Quarter Fiscal 2014 Financial Review

($ in millions except per share amounts)       Thirteen weeks ended     %       Twenty-six weeks ended     %
March 29, 2014     March 30, 2013 Increase March 29, 2014     March 30, 2013 Increase
Net sales $ 1,103.1 $ 1,004.8 10 % $ 2,489.7 $ 2,343.9 6 %
Operating income:
GAAP $ 260.5 $ 212.1 23 % $ 487.1 $ 394.5 23 %
Non-GAAP $ 271.8 $ 224.6 21 % $ 510.0 $ 419.2 22 %
Net income attributable to Keurig:
GAAP $ 162.1 $ 132.4 22 % $ 300.3 $ 240.0 25 %
Non-GAAP $ 169.8 $ 140.9 21 % $ 315.9 $ 256.9 23 %
Diluted income per share:
GAAP $ 1.03 $ 0.87 18 % $ 1.94 $ 1.57 24 %
Non-GAAP $ 1.08 $ 0.93 16 % $ 2.04 $ 1.68 21 %
Cash dividends declared per common share $ 0.25 $ N/A $ 0.50 $ N/A
 

Note: Complete GAAP to Non-GAAP reconciliation tables provided with this release.

Net Sales by Product

 

      Net sales (in millions)        
Thirteen weeks ended
March 29, 2014     March 30, 2013

$ Increase
(Decrease)

% Increase
(Decrease)

Portion packs $ 898.2 $ 794.0 $ 104.2 13 %
Brewers and accessories   137.6   126.8   10.8   9 %
Subtotal 1,035.8 920.8 115.0 12 %
Other products   67.3   84.0   (16.7 ) (20 )%
Total net sales $ 1,103.1 $ 1,004.8 $ 98.3   10 %
 

Portion Packs

Brewers and Accessories

Other Products

     

Change from
Q2 2013 to
Q2 2014

Favorable green coffee costs +440 bps
Net price realization primarily associated with portion packs -150 bps
Charge associated with portion pack manufacturing lines that were disassembled

-80 bps

Net price realization primarily associated with brewers -100 bps
Other Items

-90 bps

 

Balance Sheet & Cash Flow Highlights
"Strong earnings growth and a disciplined approach to working capital and capital investment contributed to a 30% increase of free cash flow in the quarter," said Frances G. Rathke, Keurig's Chief Financial Officer. "In addition, the strength of our balance sheet allows us to fund continued innovation and business growth while also returning significant cash to shareholders through dividends and meaningful share repurchases."

                 
Balance Sheet & Cash Flow Highlights ($ in millions) March 29, 2014 March 30, 2013 % Change  
Cash and cash equivalents, including restricted cash $ 1,112.6 $ 221.7 402 %
Accounts receivables, net $ 430.5 $ 312.9 38 %
Inventories $ 451.1 $ 587.3 (23 )%
Raw materials & supplies $ 146.3 $ 176.8 (17 )%
Coffee $ 62.9 $ 105.0 (40 )%
Packaging & other raw materials $ 83.4 $ 71.8 16 %
Finished goods $ 304.8 $ 410.5 (26 )%
Brewers & accessories $ 145.3 $ 233.9 (38 )%
Portion packs $ 135.3 $ 146.0 (7 )%
Other $ 24.2 $ 30.6 (21 )%
Debt outstanding and capital lease and financing obligations $ 269.1 $ 350.8 (23 )%
Twenty-six weeks net cash provided by operating activities $ 593.6 $ 604.7 (2 )%
Twenty-six weeks free cash flow (1) $ 474.6 $ 456.3 4 %
 

(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.

Stock Transactions
On February 27, 2014, the Company sold 16,684,139 shares of its common stock to Atlantic Industries, an indirect wholly-owned subsidiary of The Coca-Cola Company (Coca-Cola), at $74.98 per share for an aggregate purchase price of $1.25 billion, pursuant to a common stock purchase agreement dated February 5, 2014. The sale was recorded to stockholders' equity net of transaction-related expenses of approximately $7.9 million.

In addition, the terms of a prior stock purchase agreement with Luigi Lavazza S.p.A (Lavazza) allow Lavazza to maintain its percentage ownership of the Company's outstanding common stock. As a result of the February 27, 2014 issuance of common stock to Atlantic Industries, on March 28, 2014 the Company entered into a common stock purchase agreement with Lavazza to sell 1,407,000 shares of newly issued common stock to Lavazza at $74.98 per share for an aggregate purchase price of $105.5 million. The transaction closed on April 17, 2014.

Share Repurchases
On July 30, 2012, the Company's Board of Directors authorized a share repurchase program of up to $500 million of the Company's outstanding common shares over two years. On November 19, 2013, the Company's Board of Directors authorized an additional share repurchase program of up to $1.0 billion of the Company's outstanding common shares. The second share repurchase program became effective upon completion of the first share repurchase program in March 2014.

During the second quarter of fiscal year 2014, as part of its Board repurchase authorization, the Company entered into an accelerated share repurchase (ASR) agreement with a major financial institution. The ASR allows the Company to buy a large number of shares immediately at a purchase price determined by an average market price over a period of time. Upon settlement of the ASR, the total shares repurchased by the Company will be determined based upon a share price equal to the daily volume weighted average price ("VWAP") of the Company's common stock during the term of the program, less a fixed per share discount.

Under the terms of the ASR, Keurig agreed to purchase $700 million of its common stock in total, with an initial delivery to the Company of 4.3 million shares during the quarter. The initial shares represent the number of shares at the current market price equal to 70% of the total fixed purchase price of $700 million. The repurchased shares were retired. Final settlement of the ASR will occur no sooner than November 24, 2014 and no later than February 27, 2015 at the financial institution's discretion.

In addition, during the second quarter, the Company repurchased a total of 544,100 shares from the open market at a cost of $58.4 million. From the inception of its Board authorized share repurchases through the end of the Company's second fiscal quarter of 2014, the Company has repurchased a total of 15.4 million shares at a total cost of $936 million and an average price of $60.86 through a combination of the ASR, open market and 10(b)5-1 plans, including $490 million of ASR repurchases subject to final price adjustment. From the end of the second quarter through May 6, 2014 the Company has repurchased an additional 661,900 shares at a total cost of $67 million through its 10(b)5-1 program.

Keurig today announced its Board of Directors has approved a new share repurchase authorization of up to $1 billion over the next two years. The new share repurchase program will take effect upon completion of the Company's current program, which has $288 million remaining of its previously authorized $1 billion subject to final price adjustment of the ASR. As was the case with the prior authorizations, the new authorization will be implemented at such times and prices as determined appropriate by the Company's management.

Dividend Declaration
Keurig's Board of Directors has declared a regular quarterly cash dividend of $0.25 per share of the Company's common stock. The quarterly cash dividend will be paid on August 1, 2014, to shareholders of record as of the close of business on July 3, 2014.

Business Outlook and Other Forward-Looking Information
"Short term, we are focused on successfully introducing our Keurig 2.0 hot system; adding a number of additional brands as new Keurig partners; and, preparing for the launch of our Keurig cold system in fiscal year 2015. Longer term, continued investment in innovation across all facets of our business - from new product development to merchandising - will power a robust pipeline of new products, drive financial performance and fuel continued consumer passion for the Keurig brand," said Kelley.

The Company's outlook for fiscal year 2014 is as follows:

The Company also provided its outlook for its third quarter of fiscal year 2014 as follows:

Conference Call and Webcast
Keurig Green Mountain will be discussing these financial results with analysts and investors in a conference call and live webcast available via the Internet at 5:00 p.m. ET today, May 7, 2014. The call is accessible via live webcast from the events section of the Investor Relations portion of the Company's website at http://investor.keuriggreenmountain.com/events.cfm. The Company archives the latest conference call for a period of time. A replay of the conference call also will be available by telephone at (719) 457-0820, passcode 7999693 from 9:00 p.m. ET on May 7, 2014 through 9:00 p.m. ET on Monday, May 12, 2014.

Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP operating results that exclude legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation; and non-cash acquisition-related items such as amortization of identifiable intangibles, each of which include adjustments to show the tax impact of excluding these items. These amounts are not in accordance with, or an alternative to, GAAP. The Company's management believes that these measures provide investors with transparency by helping illustrate the underlying financial and business trends relating to the Company's results of operations and financial condition and comparability between current and prior periods. Management uses the measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. Please see the "GAAP to Non-GAAP Reconciliation" table that accompanies this document for a full reconciliation of the Company's GAAP to non-GAAP results.

About Keurig Green Mountain, Inc.
As a leader in specialty coffee, coffee makers, teas and other beverages, Keurig Green Mountain (Keurig) (NASDAQ: GMCR), is recognized for its award-winning beverages, innovative brewing technology, and socially responsible business practices. The Company has inspired consumer passion for its products by revolutionizing beverage preparation at home and in the workplace. Keurig supports local and global communities by investing in sustainably-grown coffee and by its active involvement in a variety of social and environmental projects. By helping consumers drink for themselves, we believe we can brew a better world. For more information visit: www.KeurigGreenMountain.com. To purchase Keurig® products visit: www.Keurig.com or www.Keurig.ca.

Keurig routinely posts information that may be of importance to investors in the Investor Relations section of its website, www.KeurigGreenMountain.com, including news releases and its complete financial statements, as filed with the SEC. The Company encourages investors to consult this section of its website regularly for important information and news. Additionally, by subscribing to the Company's automatic email news release delivery, individuals can receive news directly from Keurig as it is released.

Forward-Looking Statements
Certain information in this filing constitutes "forward-looking statements." Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "seeks" or words of similar meaning, or future or conditional verbs, such as "will," "should," "could," "may," "aims," "intends," or "projects." However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These statements may relate to: the expected impact of raw material costs and our pricing actions on our results of operations and gross margins, expected trends in net sales and earnings performance and other financial measures, the expected productivity and working capital improvements, the success of introducing and producing new product offerings, the impact of foreign exchange fluctuations, the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing, the expected results of operations of businesses acquired by us, our ability to issue debt or additional equity securities, our expectations regarding purchasing shares of our common stock under the existing authorizations, projection of payment of dividends, and the impact of the inquiry initiated by the SEC and any related litigation or additional governmental inquiry or enforcement proceedings, as well as litigation asserting claims against the Company under the federal antitrust laws and various state laws. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in the Company's Form 10-K Part I, "Item 1A. Risk Factors," and Part II "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission.

KGM-G

 
 
KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Balance Sheets
(Dollars in thousands, except per share data)
      March 29,

2014

    September 28,

2013

Assets
Current assets:
Cash and cash equivalents $ 1,112,155 $ 260,092
Restricted cash and cash equivalents 432 560
Receivables, less uncollectible accounts and return allowances of $44,732 and $33,640 at March 29, 2014 and September 28, 2013, respectively 430,547 467,976
Inventories 451,115 676,089
Income taxes receivable 30,302 11,747
Other current assets 70,603 46,891
Deferred income taxes, net   50,243     58,137  
Total current assets 2,145,397 1,521,492
 
Fixed assets, net 1,029,551 985,563
Intangibles, net 389,542 435,216
Goodwill 759,531 788,184
Deferred income taxes, net 146 149
Other long-term assets   38,562     30,944  
 
Total assets $ 4,362,729   $ 3,761,548  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 16,099 $ 12,929
Current portion of capital lease and financing obligations 1,833 1,760
Accounts payable 260,412 312,170
Dividends payable 40,483
Accrued expenses 219,744 242,427
Deferred income taxes, net 254 233
Other current liabilities   15,432     27,544  
Total current liabilities 554,257 597,063
 
Long-term debt, less current portion 150,766 160,221
Capital lease and financing obligations, less current portion 100,424 76,061
Deferred income taxes, net 245,571 252,867
Other long-term liabilities 25,976 28,721
 
Commitments and contingencies
 
Redeemable noncontrolling interests 10,865 11,045
 
Stockholders' equity:
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding
Common stock, $0.10 par value: Authorized - 500,000,000 shares; Issued and outstanding - 161,933,197 and 150,265,809 shares at March 29, 2014 and September 28, 2013, respectively 16,193 15,026
Additional paid-in capital 1,836,860 1,387,322
Retained earnings 1,474,410 1,252,407
Accumulated other comprehensive loss   (52,593 )   (19,185 )
Total stockholders' equity   3,274,870     2,635,570  
 
Total liabilities and stockholders' equity $ 4,362,729   $ 3,761,548  
 
 

KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
                   
Thirteen weeks ended Twenty-six weeks ended
March 29,

2014

March 30,

2013

March 29,

2014

March 30,

2013

Net sales $ 1,103,072 $ 1,004,792 $ 2,489,742 $ 2,343,851
Cost of sales   645,640     589,646     1,568,263     1,509,542  
Gross profit 457,432 415,146 921,479 834,309
 
 
Selling and operating expenses 125,005 124,781 293,220 296,626
General and administrative expenses   71,941     78,261     141,147     143,138  
Operating income 260,486 212,104 487,112 394,545
 
Other income, net 1,253 227 1,682 415
Gain on financial instruments, net 2,900 3,471 7,461 4,575
Loss on foreign currency, net (8,722 ) (6,115 ) (19,272 ) (8,794 )
Interest expense   (2,995 )   (3,814 )   (5,615 )   (9,544 )
Income before income taxes 252,922 205,873 471,368 381,197
 
Income tax expense   (90,609 )   (73,302 )   (170,580 )   (140,681 )
Net income 162,313 132,571 $ 300,788 $ 240,516
 
Net income attributable to noncontrolling interests   229     150     477     512  
 
Net income attributable to Keurig $ 162,084   $ 132,421   $ 300,311   $ 240,004  
 
Net income attributable to Keurig per common share:
Basic $ 1.05 $ 0.89 $ 1.98 $ 1.61
Diluted $ 1.03 $ 0.87 $ 1.94 $ 1.57
 
Cash dividends declared per common share $ 0.25 $ $ 0.50 $
 
Weighted-average common shares outstanding:
Basic 153,945,441 148,774,443 151,552,422 149,044,980
Diluted 157,463,096 152,310,053 154,525,749 152,550,160
 
 

KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
      Twenty-six     Twenty-six
weeks ended weeks ended
March 29, 2014 March 30, 2013
Cash flows from operating activities:
Net income $ 300,788 $ 240,516
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 104,222 87,820
Amortization of intangibles 21,942 22,939
Amortization of deferred financing fees 2,826 3,025
Unrealized loss on foreign currency, net 18,089 7,178
(Gain) loss on disposal of fixed assets (842 ) 241
Provision for doubtful accounts 1,575 (15 )
Provision for sales returns 51,747 58,812
Gain on derivatives, net (9,954 ) (3,847 )
Excess tax benefits from equity-based compensation plans (46,170 ) (9,563 )
Deferred income taxes (80 ) 2,901
Deferred compensation and stock compensation 15,882 15,214
Other (196 ) 449
Changes in assets and liabilities:
Receivables (20,697 ) (9,827 )
Inventories 219,417 177,665
Income tax receivable/payable, net 27,408 19,237
Other current assets 3,051 (7,861 )
Other long-term assets, net (498 ) 3,371
Accounts payable and accrued expenses (83,137 ) 3,721
Other current liabilities (9,133 ) (137 )
Other long-term liabilities   (2,620 )   (7,154 )
Net cash provided by operating activities 593,620 604,685
 
Cash flows from investing activities:
Change in restricted cash 128 3,013
Capital expenditures for fixed assets (118,978 ) (148,349 )
Purchase of long-term investment (10,000 )
Other investing activities   1,207     231  
Net cash used in investing activities (127,643 ) (145,105 )
 
Cash flows from financing activities:
Net change in revolving line of credit (184,949 )
Proceeds from sale of common stock 1,243,028
Proceeds from issuance of common stock under compensation plans 26,441 9,334
Repurchase of common stock (880,816 ) (125,681 )
Excess tax benefits from equity-based compensation plans 46,170 9,563
Payments on capital lease and financing obligations (954 ) (1,547 )
Repayment of long-term debt (6,517 ) (3,391 )
Dividends paid (37,220 )
Other financing activities   (180 )   (549 )
Net cash used in financing activities 389,952 (297,220 )
 
Effect of exchange rate changes on cash and cash equivalents (3,866 ) 521
 
Net increase in cash and cash equivalents 852,063 162,881
Cash and cash equivalents at beginning of period   260,092     58,289  
Cash and cash equivalents at end of period $ 1,112,155   $ 221,170  
 
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each period $ 43,431 $ 21,437
Dividends declared not paid at the end of each period $ 40,483 $
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations $ 25,390 $ 11,769
Settlement of acquisition related liabilities through release of restricted cash $ $ 9,227
 
 

KEURIG GREEN MOUNTAIN, INC.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands, except per share data)
         
Thirteen weeks ended
March 29, 2014 March 30, 2013
Operating income $ 260,486 $ 212,104
Expenses related to SEC inquiry (1) 546 1,043
Amortization of identifiable intangibles (2) 10,789 11,404
Non-GAAP operating income $ 271,821 $ 224,551
 
Thirteen weeks ended
March 29, 2014 March 30, 2013
Net income attributable to Keurig $ 162,084 $ 132,421
After tax:
Expenses related to SEC inquiry (1) 348 672
Amortization of identifiable intangibles (2) 7,334 7,826
Non-GAAP net income attributable to Keurig $ 169,766 $ 140,919
 
Thirteen weeks ended
March 29, 2014 March 30, 2013
Diluted income per share $ 1.03 $ 0.87
After tax:
Expenses related to SEC inquiry (1) 0.00 0.00
Amortization of identifiable intangibles (2) 0.05 0.05
Non-GAAP net income per share $ 1.08 $ 0.93 *
 
* Does not sum due to rounding.

 

(1) Represents legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation classified as general and administrative expense.
(2) Represents the amortization of intangibles related to the Company's acquisitions classified as general and administrative expense.

         

 

KEURIG GREEN MOUNTAIN, INC.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands, except per share data)
       
Twenty-six weeks ended
March 29, 2014 March 30, 2013
Operating income $ 487,112 $ 394,545
Expenses related to SEC inquiry (1) 918 1,763
Amortization of identifiable intangibles (2)   21,941   22,939
Non-GAAP operating income $ 509,971 $ 419,247
 
 
 
Twenty-six weeks ended
March 29, 2014 March 30, 2013
Net income attributable to Keurig $ 300,311 $ 240,004
After tax:
Expenses related to SEC inquiry (1) 584 1,116
Amortization of identifiable intangibles (2)   14,976   15,777
Non-GAAP net income attributable to Keurig $ 315,871 $ 256,897
 
 
 
Twenty-six weeks ended
March 29, 2014 March 30, 2013
Diluted income per share $ 1.94 $ 1.57
After tax:
Expenses related to SEC inquiry (1) 0.00 0.01
Amortization of identifiable intangibles (2)   0.10   0.10
Non-GAAP net income per share $ 2.04 $ 1.68
 

(1) Represents legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation classified as general and administrative expense.
(2) Represents the amortization of intangibles related to the Company's acquisitions classified as general and administrative expense.

Keurig Green Mountain, Inc.
Suzanne DuLong, 802-488-2600
Investor.Services@keurig.com
or
Katie Gilroy, 781-205-7345
Investor.Services@keurig.com

Source: Keurig Green Mountain, Inc.

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