Keurig Green Mountain, Inc.
Aug 6, 2014
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Keurig Green Mountain Reports Third Quarter Fiscal Year 2014 Results; Reaffirms 2014 Net Sales and Raises Earnings Per Share Outlook

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 business results for the 13 weeks ended June 28, 2014.

Performance Highlights

"We are very pleased with our outstanding non-GAAP net income growth of 31%, which exceeded our long-term growth target. Our free cash flow performance also was strong at $127 million," said Brian Kelley, Keurig's President and CEO. "We delivered net sales of approximately $1 billion for the quarter, driven by 9 percent currency-neutral growth of our core single serve business."

"Our solid year-over-year brewer shipment growth of 13% and our 15% unit growth in portion packs is indicative of the continued expansion of the Keurig system across the U.S. and Canada," stated Kelley. "We also are excited about the imminent launch of our new Keurig 2.0 hot platform; the addition of formerly unlicensed and new brands to the Keurig hot beverage system during the quarter; and, our progress on the new Keurig Cold beverage system."

Third Quarter Fiscal 2014 Financial Review

Net sales for the third quarter of fiscal 2014 increased by $55.3 million, or 6%, to $1,022.4 million as compared to the prior year period. The 6% increase includes the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 1%.

       
($ in millions except earnings per share) Thirteen weeks ended Thirty-nine weeks ended
June 28, 2014   June 29, 2013

%
Increase

June 28, 2014   June 29, 2013

%
Increase

Net sales $ 1,022.4 $ 967.1 6 % $ 3,512.1 $ 3,310.9 6 %
Operating income:
GAAP $ 231.3 $ 193.3 20 % $ 718.5 $ 587.9 22 %
Non-GAAP $ 243.2 $ 205.7 18 % $ 753.2 $ 624.9 21 %
Net income attributable to Keurig:
GAAP $ 155.2 $ 116.3 33 % $ 455.5 $ 356.3 28 %
Non-GAAP $ 163.2 $ 124.7 31 % $ 479.1 $ 381.6 26 %
Diluted income per share:
GAAP $ 0.94 $ 0.76 24 % $ 2.88 $ 2.33 24 %
Non-GAAP $ 0.99 $ 0.82 21 % $ 3.03 $ 2.50 21 %
Cash dividends declared per common share $ 0.25 $ N/A $ 0.75 $ N/A
 
Note: Complete GAAP to Non-GAAP reconciliation tables provided with this release.
 

Net Sales by Product

The primary driver of the 6% increase in net sales for the third quarter of fiscal 2014 as compared to the prior year period was a $74.6 million, or 10%, increase in total portion pack net sales. This was partially offset by a $5.1 million, or 4%, decrease in Keurig® brewer and accessory net sales and a $14.2 million, or 17%, decrease in other product net sales.

       
Net sales (in millions)
Thirteen weeks ended
June 28, 2014 June 29, 2013

$ Increase
(Decrease)

% Increase
(Decrease)

Portion Packs $ 826.3 $ 751.7 $ 74.6 10 %
Brewers and accessories   128.0   133.1   (5.1 ) (4 )%
Subtotal 954.3 884.8 69.5 8 %
Other products   68.1   82.3   (14.2 ) (17 )%
Total net sales $ 1,022.4 $ 967.1 $ 55.3   6 %
 

Portion Packs

Brewers and Accessories

Other Products

 

Change from
Q3 2013 to
Q3 2014

Favorable green coffee costs +330 bps
Logistics productivity +170 bps
Net price realization primarily associated with brewers -140 bps
Increased portion pack packaging material costs -130 bps
Change in estimate for charges related to a non-coffee purchase commitment in the prior year period -80 bps
Net price realization primarily associated with portion packs -70 bps
Other items +60 bps
+140 bps
 

Balance Sheet & Cash Flow Highlights

"We have generated strong free cash flow of $602 million year to date," said Frances G. Rathke, Keurig's Chief Financial Officer. "We're very pleased to be in a position to return significant cash to shareholders through both dividends and meaningful share repurchases while at the same time investing in our robust innovation pipeline."

"To date this fiscal year, including the $700 million accelerated stock repurchase we announced last quarter, we've returned $1.1 billion in cash to shareholders through a combination of our share repurchases and dividends. At the same time, we have maintained an extremely strong balance sheet," continued Rathke.

     
Balance Sheet & Cash Flow Highlights
($ in millions) June 28, 2014 June 29, 2013 % Change
Cash and cash equivalents, including restricted cash $ 1,204.2 $ 352.9 241 %
Accounts receivables, net $ 382.4 $ 333.6 15 %
Inventories $ 639.0 $ 586.3 9 %
Raw materials & supplies $ 179.9 $ 177.9 1 %
Coffee $ 85.8 $ 101.7 (16 )%
Packaging & other raw materials $ 94.1 $ 76.2 23 %
Finished goods $ 459.2 $ 408.4 12 %
Brewers & accessories $ 263.2 $ 251.1 5 %
Portion Packs $ 168.5 $ 128.5 31 %
Other $ 27.4 $ 28.8 (5 )%
Debt outstanding and capital lease and financing obligations $ 273.9 $ 317.3 (14 )%
Thirty-nine weeks net cash provided by operating activities $ 823.8 $ 772.2 7 %
Thirty-nine weeks free cash flow (1) $ 601.9 $ 581.8 3 %

(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 Repurchases

During the third quarter, the Company repurchased a total of 1.1 million shares from the open market at a cost of $117 million. From the inception of its Board authorized share repurchases through the end of the Company's third fiscal quarter of 2014, the Company has repurchased a total of 16.5 million shares at a total cost of $1,052 million and an average price of $63.91. This was achieved through a combination of the ASR, open market purchases and 10(b)5-1 plans, including $490 million of ASR repurchases subject to final price adjustment. From the end of the third quarter through August 5, 2014 the Company has repurchased an additional approximately 210,000 shares at a total cost of $25 million through its 10(b)5-1 plan.

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 October 31, 2014 to shareholders of record as of the close of business on October 3, 2014.

Business Outlook and Other Forward-Looking Information

The Company updated its outlook for fiscal year 2014:

The Company also provided its outlook for its fourth 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, August 6, 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 6199523 from 9:00 p.m. ET on August 6, 2014 through 9:00 p.m. ET on Monday, August 11, 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 press release 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, projections of payment of dividends, the impact of the inquiry initiated by the SEC and any related litigation or additional governmental inquiry or enforcement proceedings, and the impact of any pending or future antitrust litigation. 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 Part II, "Item 1A. Risk Factors" in our Form 10-Q filed with the Securities and Exchange Commission for the thirteen weeks ended June 28, 2014, and Part II "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our fiscal 2013 Annual Report filed on Form 10-K, as amended, and elsewhere in those reports and those described from time to time in our future reports filed with the Securities and Exchange Commission.

KGM-G, KGM-US, KGM-CA

 

KEURIG GREEN MOUNTAIN, INC.

Unaudited Consolidated Balance Sheets
(Dollars in thousands, except per share data)
 

June 28,
2014

 

September 28,
2013

Assets
Current assets:
Cash and cash equivalents $ 1,203,711 $ 260,092
Restricted cash and cash equivalents 470 560
Receivables, less uncollectible accounts and return allowances of $34,492 and $33,640 at June 28, 2014 and September 28, 2013, respectively 382,382 467,976
Inventories 639,019 676,089
Income taxes receivable 1,725 11,747
Other current assets 63,680 46,891
Deferred income taxes, net   49,263     58,137  
Total current assets 2,340,250 1,521,492
 
Fixed assets, net 1,105,648 985,563
Intangibles, net 389,419 435,216
Goodwill 773,706 788,184
Deferred income taxes, net 147 149
Other long-term assets   34,494     30,944  
 
Total assets $ 4,643,664   $ 3,761,548  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 17,675 $ 12,929
Current portion of capital lease and financing obligations 2,021 1,760
Accounts payable 370,052 312,170
Dividends payable 40,653
Accrued expenses 239,845 242,427
Deferred income taxes, net 113 233
Other current liabilities   12,917     27,544  
Total current liabilities 683,276 597,063
 
Long-term debt, less current portion 145,986 160,221
Capital lease and financing obligations, less current portion 108,177 76,061
Deferred income taxes, net 248,038 252,867
Other long-term liabilities 23,402 28,721
 
Commitments and contingencies
 
Redeemable noncontrolling interests 12,420 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 - 162,612,596 and 150,265,809 shares at June 28, 2014 and September 28, 2013, respectively 16,261 15,026
Additional paid-in capital 1,846,409 1,387,322
Retained earnings 1,587,707 1,252,407
Accumulated other comprehensive loss   (28,012 )   (19,185 )
Total stockholders' equity   3,422,365     2,635,570  
 
Total liabilities and stockholders' equity $ 4,643,664   $ 3,761,548  
 

 
KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
       

Thirteen weeks ended

Thirty-nine weeks ended

June 28,
2014

June 29,
2013

June 28,
2014

June 29,
2013

Net sales $ 1,022,371 $ 967,072 $ 3,512,113 $ 3,310,923
Cost of sales   577,779     559,454     2,146,042     2,068,996  
Gross profit 444,592 407,618 1,366,071 1,241,927
 
 
Selling and operating expenses 127,855 136,742 421,075 433,368
General and administrative expenses   85,390     77,532     226,537     220,670  
Operating income 231,347 193,344 718,459 587,889
 
Other income, net 253 237 1,935 652
(Loss) gain on financial instruments, net (2,843 ) 4,419 4,618 8,994
Gain (loss) on foreign currency, net 8,849 (10,391 ) (10,423 ) (19,185 )
Interest expense   (2,441 )   (3,937 )   (8,056 )   (13,481 )
Income before income taxes 235,165 183,672 706,533 564,869
 
Income tax expense   (79,789 )   (67,226 )   (250,369 )   (207,907 )
Net income 155,376 116,446 $ 456,164 $ 356,962
 
Net income attributable to noncontrolling interests   225     174     702     686  
 
Net income attributable to Keurig $ 155,151   $ 116,272   $ 455,462   $ 356,276  
 
Net income attributable to Keurig per common share:
Basic $ 0.95 $ 0.78 $ 2.93 $ 2.39
Diluted $ 0.94 $ 0.76 $ 2.88 $ 2.33
 
Cash dividends declared per common share $ 0.25 $ $ 0.75 $
 
Weighted-average common shares outstanding:
Basic 162,695,801 149,825,581 155,267,136 149,307,144
Diluted 164,693,146 152,869,392 157,922,095 152,647,767
 

KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
  Thirty-nine   Thirty-nine
weeks ended weeks ended
June 28, 2014 June 29, 2013
Cash flows from operating activities:
Net income $ 456,164 $ 356,962
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 159,189 137,734
Amortization of intangibles 32,628 34,234
Amortization of deferred financing fees 4,238 4,538
Unrealized loss on foreign currency, net 5,869 15,555
(Gain) loss on disposal of fixed assets (603 ) 222
Provision for doubtful accounts 2,294 68
Provision for sales returns 65,853 59,209
Gain on derivatives, net (2,082 ) (7,872 )
Excess tax benefits from equity-based compensation plans (52,659 ) (47,845 )
Deferred income taxes (1,206 ) 8,794
Deferred compensation and stock compensation 23,488 21,393
Other 1,020 881
Changes in assets and liabilities:
Receivables 14,579 (32,732 )
Inventories 34,433 175,532
Income tax receivable/payable, net 62,656 48,905
Other current assets 2,622 (34,634 )
Other long-term assets, net 2,851 3,311
Accounts payable and accrued expenses 28,117 39,082
Other current liabilities (10,419 ) (2,469 )
Other long-term liabilities   (5,264 )   (8,633 )
Net cash provided by operating activities 823,768 772,235
 
Cash flows from investing activities:
Change in restricted cash 90 2,852
Capital expenditures for fixed assets (221,887 ) (190,388 )
Purchase of long-term investment   (10,000 )    
Other investing activities   1,235     501  
Net cash used in investing activities (230,562 ) (187,035 )
 
Cash flows from financing activities:
Net change in revolving line of credit (226,210 )
Proceeds from sale of common stock 1,348,414
Proceeds from issuance of common stock under compensation plans 33,143 21,764
Repurchase of common stock (997,386 ) (125,681 )
Excess tax benefits from equity-based compensation plans 52,659 47,845
Payments on capital lease and financing obligations (1,444 ) (2,596 )
Repayment of long-term debt (9,798 ) (6,640 )
Dividends paid   (77,705 )    
Other financing activities   (436 )   (1,006 )
Net cash provided by (used in) financing activities 347,447 (292,524 )
 
Effect of exchange rate changes on cash and cash equivalents 2,966 1,240
 
Net increase in cash and cash equivalents 943,619 293,916
Cash and cash equivalents at beginning of period   260,092     58,289  
Cash and cash equivalents at end of period $ 1,203,711   $ 352,205  
 
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each period $ 59,646 $ 17,998
Dividends declared not paid at the end of each period $ 40,653 $
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations $ 33,821 $ 23,461
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
June 28, 2014 June 29, 2013
Operating income $ 231,347 $ 193,344
Expenses related to SEC inquiry (1) 1,181 1,036
Amortization of identifiable intangibles (2)   10,686   11,295
Non-GAAP operating income $ 243,214 $ 205,675
 
Thirteen weeks ended
June 28, 2014 June 29, 2013
Net income attributable to Keurig $ 155,151 $ 116,272
After tax:
Expenses related to SEC inquiry (1) 762 657
Amortization of identifiable intangibles (2)   7,270   7,746
Non-GAAP net income attributable to Keurig $ 163,183 $ 124,675
 
Thirteen weeks ended
June 28, 2014 June 29, 2013
Diluted income per share $ 0.94 $ 0.76
After tax:
Expenses related to SEC inquiry (1)
Amortization of identifiable intangibles (2)   0.04   0.05
Non-GAAP net income per share $ 0.99 * $ 0.82 *
 
* 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)
       
Thirty-nine weeks ended
June 28, 2014   June 29, 2013
Operating income $ 718,459 $ 587,889
Expenses related to SEC inquiry (1) 2,099 2,799
Amortization of identifiable intangibles (2)   32,627   34,234
Non-GAAP operating income $ 753,185 $ 624,922
 
Thirty-nine weeks ended
June 28, 2014 June 29, 2013
Net income attributable to Keurig $ 455,462 $ 356,276
After tax:
Expenses related to SEC inquiry (1) 1,347 1,773
Amortization of identifiable intangibles (2)   22,246   23,523
Non-GAAP net income attributable to Keurig $ 479,055 $ 381,572
 
Thirty-nine weeks ended
June 28, 2014 June 29, 2013
Diluted income per share $ 2.88 $ 2.33
After tax:
Expenses related to SEC inquiry (1) 0.01 0.01
Amortization of identifiable intangibles (2)   0.14   0.15
Non-GAAP net income per share $ 3.03 $ 2.50 *
 
* 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.
Suzanne DuLong, 781-418-8075
Investor.Services@keurig.com
or
Katie Gilroy, 781-205-7345
Investor.Services@keurig.com

Source: Keurig Green Mountain, Inc.

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