Keurig Green Mountain, Inc.
Nov 19, 2014
PDF

Keurig Green Mountain Announces Strong Fourth Quarter and Fiscal Year 2014 Financial Results

Board of Directors Authorizes a 15% Dividend Increase

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 and 52 weeks ended September 27, 2014.

"2014 was an exciting year that saw Keurig Green Mountain successfully execute against aggressive strategic goals and meet or exceed all of our financial targets," said Brian Kelley, Keurig's President and CEO. "The fourth quarter was a strong end to the year, with 17% Keurig beverage system revenue growth highlighted by strong portion pack growth across our brand portfolio."

"Looking to fiscal year 2015, we remain focused on what we believe is a significant opportunity to grow and premiumize home beverages in both our hot and cold platforms. We'll continue to invest and execute behind this opportunity, given the powerful brand connection we've built with consumers and our successful track record of introducing disruptive and innovative products," continued Kelley. "Our strong balance sheet and healthy free cash flow generation are an advantage, enabling us to invest behind organic growth and return meaningful cash to shareholders in the form of both dividends and share repurchases."

Fourth Quarter Fiscal 2014 Financial Review

               

Thirteen weeks
ended

Thirteen weeks
ended

 

($ in millions except earnings per
share)

Sept 27, 2014

Sept 28, 2013

%
Increase

Net sales $ 1,195.6 $ 1,047.2 14 %
Operating income:
GAAP $ 228.8 $ 177.3 29 %
Non-GAAP $ 240.2 $ 190.6 26 %
Net income:
GAAP $ 141.1 $ 127.0 11 %
Non-GAAP $ 148.8 $ 136.0 9 %
Diluted income per share:
GAAP $ 0.86 $ 0.83 4 %
Non-GAAP $ 0.90 $ 0.89 1 %
 

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

Net Sales by Product

Net sales of $1.2 billion represented 14% growth in the quarter over the prior year period driven by strong performance in our portion pack business. Net sales growth was positively impacted by approximately 4 percentage points in the quarter due to certain retailer customers ordering portion packs more aggressively ahead of our fiscal year end SAP implementation.

The 14% increase includes an unfavorable impact from foreign currency exchange rates of approximately half a percentage point. Total portion pack net sales increased 22% in the quarter while brewers and accessory net sales declined 5%. Total net sales growth was negatively impacted by a 17% decrease in other product net sales in the quarter.

                       

Thirteen weeks
ended

   

Thirteen weeks
ended

($ in millions) Sept 27, 2014     Sept 28, 2013

$ Increase
(Decrease)

% Increase
(Decrease)

Portion packs $ 948.7 $ 777.9 $ 170.8 22 %
Brewers and accessories   181.6   190.4   (8.8 ) (5 )%
Subtotal 1,130.3 968.3 162.0 17 %
Other products and royalties   65.3   78.9   (13.6 ) (17 )%
Total net sales $ 1,195.6 $ 1,047.2 $ 148.4   14 %
 

Portion Packs

Brewers and Accessories

Other Products

       

Change from Q4
Fiscal 2013 to Q4
Fiscal 2014

Shift in sales mix between Keurig® brewers and portion packs +260 bps
Favorable green coffee costs +210 bps
Brewer sales mix -210 bps

Lower write-downs due to obsolescence expense of brewer
inventories as part of fiscal 2013 product transition plans

+170 bps
Increased portion pack packaging material costs -130 bps
Net price realization associated with portion packs -120 bps
Net price realization associated with brewers -100 bps
Other items +80 bps
 

Fiscal Year 2014 Financial Review

               
($ in millions except earnings per share) Fiscal 2014 Fiscal 2013

%
Increase

Net sales $ 4,707.7 $ 4,358.1 8 %
Operating income:
GAAP $ 947.2 $ 765.2 24 %
Non-GAAP $ 993.4 $ 815.5 22 %
Net income:
GAAP $ 596.5 $ 483.2 23 %
Non-GAAP $ 627.9 $ 517.6 21 %
Diluted income per share:
GAAP $ 3.74 $ 3.16 18 %
Non-GAAP $ 3.93 $ 3.39 16 %
 

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

Net Sales by Product

For the year, net sales of $4.7 billion grew 8% over the prior year driven by a combination of strong performance in the portion pack business and solid brewer volume growth. The 8% increase includes an unfavorable impact from foreign currency exchange rates of approximately one percentage point. The core Keurig® beverage system business grew 11% over the prior year period excluding approximately one percentage point impact of foreign exchange rates.

The primary driver of the 8% increase in net sales for fiscal year 2014 as compared to the prior year was a $417 million, or 13%, increase in total portion pack net sales. Brewer and accessories net sales declined 1%, over fiscal year 2013. Total net sales growth was also negatively impacted by an 18% decrease in other product net sales in the quarter.

                   
       
($ in millions) Fiscal 2014 Fiscal 2013

$ Increase
(Decrease)

% Increase
(Decrease)

Portion packs $ 3,604.5 $ 3,187.3 $ 417.2 13 %
Brewers and accessories   822.3   827.6   (5.3 ) (1 )%
Subtotal 4,426.8 4,014.9 411.9 10 %
Other products and royalties   280.9   343.2   (62.3 ) (18 )%
Total net sales $ 4,707.7 $ 4,358.1 $ 349.6   8 %
 

Portion Packs

Brewers and Accessories

Other Products

       

Change from Fiscal
2013 to Fiscal 2014

Favorable green coffee costs +330 bps
 
Net price realization associated with portion packs and brewers -210 bps
Logistics productivity +120 bps
Brewer and portion pack sales mix -100 bps
Increased portion pack packaging material costs -90 bps
Shift in sales mix between Keurig® brewers and portion packs +90 bps
Higher warranty expense -50 bps
Other items +50 bps
 

Balance Sheet & Cash Flow Highlights

"We delivered free cash flow of $382 million this year, above the top end of our $300 to $350 million estimated range and returned nearly $1.2 billion to shareholders," said Frances G. Rathke, Keurig's Chief Financial Officer. "Combined with a strong balance sheet, these cash flows allow us to continue our balanced, long-term approach to value creation."

               
Balance Sheet & Cash Flow Highlights ($ in millions) September 27, 2014 September 28, 2013

%
Change

 
Cash and cash equivalents, including restricted cash $ 761.6 $ 260.7 192 %
Accounts receivables, net $ 621.5 $ 468.0 33 %
Inventories $ 835.2 $ 676.1 24 %
Raw materials & supplies $ 169.9 $ 182.9 (7 )%
Coffee $ 74.4 $ 100.2 (26 )%
Packaging & other raw materials $ 95.5 $ 82.7 15 %
Finished goods $ 665.3 $ 493.2 35 %
Brewers & accessories $ 477.5 $ 323.2 48 %
Portion packs $ 164.9 $ 149.3 10 %
Other $ 22.9 $ 20.7 11 %
Debt outstanding and capital lease and financing obligations $ 278.5 $ 251.0 11 %
Cash provided by operating activities (1) $ 719.4 $ 836.0 (14 )%
Free cash flow (1) $ 381.6 $ 603.2 (37 )%
 

(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 fourth quarter, the Company repurchased a total of 440 thousand shares at a cost of $55 million. From the inception of its Board authorized share repurchases through the end of the Company's fourth fiscal quarter of 2014, the Company has repurchased a total of 16.9 million shares at a total cost of $1,107 million and an average price of $65.51. This was achieved through a combination of the previously announced Accelerated Stock Repurchase agreement (ASR), open market purchases and 10(b)5-1 plans, including $490 million of ASR repurchases subject to final price adjustment.

Dividend Declaration

Reflecting its commitment to return capital to shareholders and its expectation for continued strong cash flow generation, the Company announced a 15 percent increase in its indicated annualized dividend to $1.15 per share from $1.00. The increase will take effect with the February 12, 2015 quarterly dividend payment of $0.2875 declared by the Board payable to shareholders of record as of the close of business on January 13, 2015.

Business Outlook and Other Forward-Looking Information

The Company provided its outlook for fiscal year 2015 and the first quarter:

Fiscal Year 2015

First Quarter 2015

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, November 19, 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 8372972 from 9:00 p.m. ET on November 19, 2014 through 9:00 p.m. ET on Monday, November 24, 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. In fiscal 2015 the Company's non-GAAP operating results also exclude legal and accounting expenses related to the pending antitrust litigation against the Company. In each case 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 e-mail 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, projections of payment of dividends, the impact of pending shareholder litigation, and the impact of antitrust litigation pending against the Company in the United States and Canada. 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 I, "Item 1A. Risk Factors" and Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended September 27, 2014, 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)
 
September 27,

2014

September 28,

2013

Assets
Current assets:
Cash and cash equivalents $ 761,214 $ 260,092
Restricted cash and cash equivalents 378 560
Short-term investment 100,000

Receivables, less uncollectible accounts and return allowances of $66,120
and $33,640 at September 27, 2014 and September 28, 2013, respectively

621,451 467,976
Inventories 835,167 676,089
Income taxes receivable 11,747
Other current assets 69,272 46,891
Deferred income taxes, net   58,038     58,137  
Total current assets 2,445,520 1,521,492
 
Fixed assets, net 1,171,425 985,563
Intangibles, net 365,444 435,216
Goodwill 755,895 788,184
Deferred income taxes, net 131 149
Other long-term assets   58,892     30,944  
 
Total assets $ 4,797,307   $ 3,761,548  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt 19,077 12,929
Current portion of capital lease and financing obligations 2,226 1,760
Accounts payable 411,107 312,170
Accrued expenses 305,677 242,427
Income tax payable 53,586
Dividend payable 40,580
Deferred income taxes, net 340 233
Other current liabilities   10,395     27,544  
Total current liabilities 842,988 597,063
 
Long-term debt, less current portion 140,937 160,221
Capital lease and financing obligations, less current portion 116,240 76,061
Deferred income taxes, net 202,936 252,867
Other long-term liabilities 23,085 28,721
 
Commitments and contingencies
 
Redeemable noncontrolling interests 12,440 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 - 162,318,246 and 150,265,809 shares at September 27, 2014 and
September 28, 2013, respectively

16,232 15,026
Additional paid-in capital 1,808,881 1,387,322
Retained earnings 1,687,619 1,252,407
Accumulated other comprehensive (loss) income   (54,051 )   (19,185 )
Total stockholders' equity   3,458,681     2,635,570  
 
Total liabilities and stockholders' equity $ 4,797,307   $ 3,761,548  
 

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

Thirteen
weeks ended

Thirteen
weeks ended

 

 

Sept 27, 2014 Sept 28, 2013

Fiscal 2014

Fiscal 2013

Net sales $ 1,195,567 $ 1,047,177 $ 4,707,680 $ 4,358,100
Cost of sales   745,778     669,718     2,891,820     2,738,714  
Gross profit 449,789 377,459 1,815,860 1,619,386
 
Selling and operating expenses 140,498 127,062 561,573 560,430
General and administrative expenses   80,509     73,059     307,046     293,729  
Operating income 228,782 177,338 947,241 765,227
 
Other (expense) income, net (1,673 ) 308 262 960
Gain (loss) on financial instruments, net 3,689 (3,481 ) 8,307 5,513
(Loss) gain on foreign currency, net (9,323 ) 6,536 (19,746 ) (12,649 )
Interest expense   (3,635 )   (4,696 )   (11,691 )   (18,177 )
Income before income taxes 217,840 176,005 924,373 740,874
 
Income tax expense   (76,590 )   (48,864 )   (326,959 )   (256,771 )
Net income $ 141,250 $ 127,141 $ 597,414 $ 484,103
 

Net income attributable to noncontrolling
interests

  194     185     896     871  
 
Net income attributable to Keurig $ 141,056   $ 126,956   $ 596,518   $ 483,232  
 

Net income attributable to Keurig per
common share:

Basic $ 0.87 $ 0.84 $ 3.80 $ 3.23
Diluted $ 0.86 $ 0.83 $ 3.74 $ 3.16
 
Cash dividends declared per common share $ 0.25 $ $ 1.00 $
 

Weighted-average common shares
outstanding:

Basic 162,540,994 150,633,106 157,085,574 149,638,636
Diluted 164,446,353 153,280,550 159,568,342 152,801,493
 

           
KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
 
Fiscal 2014 Fiscal 2013
Cash flows from operating activities:
Net income $ 597,414 $ 484,103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 214,607 183,814
Amortization of intangibles 43,032 45,379
Amortization of deferred financing fees 5,651 7,125
Unrealized loss (gain) on foreign currency, net 15,196 9,159
(Gain) loss on disposal of fixed assets (602 ) (85 )
Provision for doubtful accounts 1,782 689
Provision for sales returns

114,057

79,747
(Gain) loss on derivatives, net (1,582 ) (4,507 )
Excess tax benefits from equity-based compensation plans (55,444 ) (54,699 )
Deferred income taxes (52,708 ) (17,701 )
Deferred compensation and stock compensation 30,882 26,315
Other 4,826 844
Changes in assets and liabilities:
Receivables

(274,884

) (187,221 )
Inventories (166,473 ) 87,677
Income tax payable/receivable, net 120,553 46,290
Other current assets (838 ) (12,668 )
Other long-term assets, net 3,162 3,915
Accounts payable and accrued expenses 133,818 133,532
Other current liabilities (7,521 ) 3,100
Other long-term liabilities   (5,495 )   1,161  
Net cash provided by operating activities 719,433 835,969
 
Cash flows from investing activities:
Change in restricted cash 182 3,005
Purchase of short-term investment (100,000 )
Purchase of long-term investment (35,905 )
Capital expenditures for fixed assets (337,860 ) (232,780 )
Other investing activities   1,164     4,208  
Net cash used in investing activities (472,419 ) (225,567 )
 
Cash flows from financing activities:
Net change in revolving line of credit (226,210 )
 
Proceeds from issuance of common stock under compensation plans 40,681 29,777
 
Proceeds from issuance of common stock for private placement 1,348,414
Repurchase of common stock (1,052,430 ) (188,278 )
Excess tax benefits from equity-based compensation plans 55,444 54,699
Payments on capital lease and financing obligations (1,931 ) (8,288 )
Proceeds from borrowings of long-term debt 403
Repayment of long-term debt (13,361 ) (71,620 )
Dividends paid (118,358 )
Purchase of noncontrolling interest (4,752 )
Other financing activities   (1,124 )   (1,406 )

Net cash provided by (used in) financing activities

252,986 (411,326 )
 
Effect of exchange rate changes on cash and cash equivalents 1,122 2,727
 
Net increase in cash and cash equivalents 501,122 201,803
Cash and cash equivalents at beginning of period   260,092     58,289  
Cash and cash equivalents at end of period $ 761,214   $ 260,092  
 
Supplemental disclosures of cash flow information:
Cash paid for interest $ 12,043 $ 9,129
Cash paid for income taxes $ 270,367 $ 223,580
Dividends declared not paid at the end of each period $ 40,580 $

Fixed asset purchases included in accounts payable and not
disbursed at the end of each year

$ 64,202 $ 30,541
Noncash investing and financing activities:

Fixed assets acquired under capital lease and financing
obligations

$ 40,125 $ 27,791

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
September 27, 2014

Thirteen weeks
ended
September 28, 2013

Operating income $ 228,782 $ 177,338
Expenses related to SEC inquiry (1) 1,031 2,111
Amortization of identifiable intangibles (2)   10,405   11,145
Non-GAAP operating income $ 240,218 $ 190,594
 

Thirteen weeks
ended
September 27, 2014

Thirteen weeks
ended
September 28, 2013

Net income attributable to Keurig $ 141,056 $ 126,956
After tax:
Expenses related to SEC inquiry (1) 676 1,435
Amortization of identifiable intangibles (2)   7,078   7,605
Non-GAAP net income attributable to Keurig $ 148,810 $ 135,996
 

Thirteen weeks
ended
September 27, 2014

Thirteen weeks
ended
September 28, 2013

Diluted income per share $ 0.86 $ 0.83
After tax:
Expenses related to SEC inquiry (1) 0.01
Amortization of identifiable intangibles (2)   0.04   0.05
Non-GAAP net income per share $ 0.90 $ 0.89

 

* 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)

           
Fiscal 2014 Fiscal 2013
Operating income $ 947,241 $ 765,227
Expenses related to SEC inquiry (1) 3,130 4,910
Amortization of identifiable intangibles (2)   43,032   45,379
Non-GAAP operating income $ 993,403 $ 815,516
 
 
Fiscal 2014 Fiscal 2013
Net income attributable to GMCR $ 596,518 $ 483,232
After tax:
Expenses related to SEC inquiry (1) 2,023 3,208
Amortization of identifiable intangibles (2)   29,324   31,128
Non-GAAP net income attributable to Keurig $ 627,865 $ 517,568
 
 
Fiscal 2014 Fiscal 2013
Diluted income per share $ 3.74 $ 3.16
After tax:
Expenses related to SEC inquiry (1) 0.01 0.02
Amortization of identifiable intangibles (2)   0.18   0.20
Non-GAAP net income per share $ 3.93

$ 3.39*

 

* 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
Suzanne DuLong, 781-418-8075
Investor.Services@keurig.com
or
Katie Gilroy, 781-418-3345
Investor.Services@keurig.com

Source: Keurig Green Mountain

News Provided by Acquire Media