Keurig Green Mountain, Inc.
Feb 4, 2015
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Keurig Green Mountain Announces Fiscal First Quarter 2015 Results

Board of Directors Declares $0.2875 Quarterly Dividend

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 December 27, 2014.

"Keurig is pleased to deliver earnings per share in line with our outlook. Revenue came in below our expectations primarily due to a weaker than expected holiday season for brewers, including the effect of the voluntary recall on certain MINI Plus brewers, and greater than expected retailer portion pack inventory reductions. We believe these factors are transitory and, while the impact to the holiday season for our hot platform was disappointing, we remain very enthusiastic about our opportunity to grow and premiumize at-home beverages across both our hot and cold platforms," said President and CEO, Brian Kelley.

First Quarter Fiscal 2015 Financial Review

           
($ in millions except earnings per share) Thirteen weeks ended
December 27, 2014     December 28, 2013     % Change
Net sales $ 1,386.4     $ 1,386.7 0 %
Operating income:
GAAP $ 215.9 $ 226.6 (5 )%
Non-GAAP $ 229.7 $ 238.2 (4 )%
Net income attributable to Keurig:
GAAP $ 134.6 $ 138.2 (3 )%
Non-GAAP $ 143.9 $ 146.1 (2 )%
Diluted income per share (EPS):
GAAP $ 0.82 $ 0.91 (10 )%
Non-GAAP $ 0.88 $ 0.96 (8 )%
 
Cash dividends declared per common share $ 0.2875 $ 0.25 15 %
 
Note: See complete GAAP to Non-GAAP Reconciliation tables attached to this release.
 

Net Sales by Product

Net sales of $1.4 billion were in-line with the prior year quarter primarily driven by lower brewer and accessory sales partially offset by growth in portion packs. Net sales growth in the quarter was negatively impacted by approximately 3 percentage points due to certain retailer customers ordering portion packs more aggressively in the fourth quarter of fiscal year 2014 ahead of our SAP implementation and approximately 1 percentage point from foreign currency exchange rates. Excluding the impact of foreign currency exchange rates and SAP pre-ordering, total net sales grew approximately 4% and total Keurig beverage system sales grew approximately 5%.

Net sales for the U.S. segment increased 2% while sales of the Canada segment declined 12% on a reported basis and 6% excluding the impact of foreign currency exchange rates.

Total portion pack net sales increased 9% in the quarter while brewers and accessories net sales declined 18%. Total net sales growth was negatively impacted by a 17% decrease in other product net sales in the quarter.

                   
Net Sales by Product Net sales (in millions)
Thirteen weeks ended
December 27, 2014     December 28, 2013    

$ Increase
(Decrease)

   

% Increase
(Decrease)

Portion packs $ 1,012.3 $ 931.4 $ 80.9 9 %
Brewers and accessories 307.6     375.1     (67.5) (18)%
Subtotal 1,319.9 1,306.5 13.4 1 %
Other products 66.5     80.2     (13.7) (17)%
Total net sales $ 1,386.4     $ 1,386.7     $ (0.3) 0%
 

Portion Packs

Brewers and Accessories

Other Products

       

Change from
Q1 2014 to
Q1 2015

Shift in sales mix between portion packs, brewers and accessories and other products +340 bps
Mix associated with brewers -270 bps
Net price realization associated with brewers -130 bps
Mix associated with portion packs -120 bps
Net price realization associated with portion packs +90 bps
Supply chain productivity +80 bps
Other items +10 bps
 

Balance Sheet & Cash Flow Highlights

Frances G. Rathke, Chief Financial Officer stated, "We ended the first quarter with net cash and other cash assets of over $600 million, and combined with a strong and flexible balance sheet, we remain well positioned to invest in innovation and organic growth while continuing to return meaningful cash to shareholders. This includes our dividend, which was raised by 15% last quarter and a share repurchase authorization which stands at $1.1 billion at the end of the first quarter."

               
Balance Sheet & Cash Flow Highlights ($ in millions) December 27, 2014     December 28, 2013     % Change
Cash and cash equivalents, including restricted cash $ 536.5 $ 349.8 53 %
Accounts receivables, net $ 643.0 $ 525.1 22 %
Inventories $ 780.8 $ 467.3 67 %
Raw materials & supplies $ 202.5 $ 148.6 36 %
Coffee $ 101.2 $ 68.7 47 %
Packaging & other raw materials $ 101.3 $ 79.9 27 %
Finished goods $ 578.3 $ 318.7 81 %
Brewers & accessories $ 360.9 $ 156.1 131 %
Portion packs $ 194.4 $ 140.4 38 %
Other $ 23.0 $ 22.2 4 %
 
Debt outstanding and capital lease and financing obligations $ 274.6 $ 259.8 6 %
 
Thirteen weeks net cash provided by operating activities $ 142.4 $ 272.7 (48 )%
Thirteen weeks free cash flow (1) $ 42.1 $ 211.9 (80 )%
 

(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 first quarter, the Company repurchased a total of 586,000 shares at a cost of $81 million. From the inception of its Board authorized share repurchase program through the end of the Company's first fiscal quarter of 2015, the Company has repurchased a total of 17.5 million shares at an average price of $67.94 for a total cost of $1,188 million. This was achieved through a combination of the previously announced ASR, open market purchases and 10(b)5-1 plans, including $490 million of ASR repurchases subject to final price adjustment.

Dividend Declaration

Keurig's Board of Directors has declared a regular quarterly cash dividend of $0.2875 per share of the Company's common stock. The quarterly cash dividend will be paid on April 30, 2015 to shareholders of record as of the close of business on March 31, 2015.

Business Outlook and Other Forward-Looking Information

"Looking ahead, as a result of certain factors that impacted the first quarter, we now expect revenue to grow mid- to high-single digits in fiscal year 2015," said Kelley. "Our innovative technology and growing installed base continue to attract premier beverage brands and, with the signing of recent agreements, we have further extended our unrivalled network of partnerships. We are focused on what we believe is a significant opportunity to grow and premiumize at-home hot beverages and we are on track to launch our Keurig cold system in the fall."

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

Fiscal Year 2015

Second Quarter 2015

1 Certain items in this press release are designated as "Non-GAAP" and represent non-GAAP financial measures that exclude certain items. Please see the attached "GAAP to Non-GAAP Reconciliation" to find disclosure and reconciliation of non-GAAP financial measures, as well as a discussion in this release as to why the Company is presenting such non-GAAP measures.

2 Equivalent servings translates our multiple pack sizes, including K-Cup, K-Carafe and Bolt packs, into a common serving

3 The Company issued 16.7 million shares as part of the transaction with The Coca-Cola Company, which closed February 27, 2014 and another 1.4 million shares as part of the transaction with Luigi Lavazza S.p.A, which closed April 7, 2014 (the Coca-Cola and Lavazza Equity Transactions).

Conference Call and Webcast

Keurig 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, February 4, 2015. 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 1811595 from 9:00 p.m. ET on February 4, 2015 through 9:00 p.m. ET on Monday, February 9, 2015.

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 pending securities and stockholder derivative class action litigation and pending antitrust litigation against the Company; 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 2014 the Company's non-GAAP operating results also exclude legal and accounting expenses related to the now concluded SEC inquiry. 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 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, projections for future capital expenditures, 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 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 fiscal 2014 Annual Report filed on Form 10-K, elsewhere in this report 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)
 

December 27, 2014

September 27, 2014

Assets
Current assets:
Cash and cash equivalents $ 506,359 $ 761,214
Restricted cash and cash equivalents 30,177 378
Short-term investment 100,000 100,000

Receivables, less uncollectible accounts and return allowances of $76,265 and $66,120
at December 27, 2014 and September 27, 2014, respectively

643,029 621,451
Inventories 780,794 835,167
Income taxes receivable 42,780
Other current assets 75,290 69,272
Deferred income taxes, net   52,388     58,038  
Total current assets 2,230,817 2,445,520
 
Fixed assets, net 1,222,569 1,171,425
Intangibles, net 344,856 365,444
Goodwill 957,771 755,895
Deferred income taxes, net 129 131
Other long-term assets   19,723     58,892  
 
Total assets $ 4,775,865   $ 4,797,307  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 20,624 $ 19,077
Current portion of capital lease and financing obligations 2,916 2,226
Accounts payable 396,667 411,107
Accrued expenses 326,337 305,677
Income tax payable 53,586
Dividend payable 46,594 40,580
Deferred income taxes, net 362 340
Other current liabilities   11,938     10,395  
Total current liabilities 805,438 842,988
 
Long-term debt, less current portion 134,637 140,937
Capital lease and financing obligations, less current portion 116,440 116,240
Deferred income taxes, net 193,312 202,936
Other long-term liabilities 52,828 23,085
 
Commitments and contingencies
 
Redeemable noncontrolling interests 11,666 12,440
 
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 - 162,066,179 and 162,318,246 shares at December 27, 2014 and
September 27, 2014, respectively

16,207 16,232
Additional paid-in capital 1,753,913 1,808,881
Retained earnings 1,775,832 1,687,619
Accumulated other comprehensive loss   (84,408 )   (54,051 )
Total stockholders' equity   3,461,544     3,458,681  
 
Total liabilities and stockholders' equity $ 4,775,865   $ 4,797,307  
 

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

Thirteen weeks ended

December 27, 2014

December 28, 2013

Net sales $ 1,386,358 $ 1,386,670
Cost of sales   922,236     922,623  
Gross profit 464,122 464,047
 
Selling and operating expenses 176,522 168,215
General and administrative expenses   71,673     69,206  
Operating income 215,927 226,626
 
Other income, net 181 429
Gain on financial instruments, net 3,345 4,561
Loss on foreign currency, net (9,071 ) (10,550 )
Interest expense   (1,087 )   (2,620 )
Income before income taxes 209,295 218,446
 
Income tax expense   (74,616 )   (79,971 )
Net income 134,679 138,475
 
Net income attributable to noncontrolling interests   100     248  
 
Net income attributable to Keurig $ 134,579   $ 138,227  
 
Net income attributable to Keurig per common share:
Basic $ 0.83 $ 0.93
Diluted $ 0.82 $ 0.91
 
Cash dividends declared per common share $ 0.2875 $ 0.25
 
Weighted-average common shares outstanding:
Basic 162,181,332 149,162,600
Diluted 164,075,038 151,581,897
 

           
KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
 
Thirteen Thirteen
weeks ended weeks ended
December 27, 2014 December 28, 2013
Cash flows from operating activities:
Net income $ 134,679 $ 138,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 51,049 47,996
Amortization of intangibles 10,110 11,152
Amortization of deferred financing fees 1,413 1,413
Unrealized loss on foreign currency, net 8,981 11,932
Loss (gain) on disposal of fixed assets 217 (983 )
Provision for doubtful accounts 2,479 862
Provision for sales returns 42,856 38,237
Gain on derivatives, net (3,462 ) (6,830 )
Excess tax benefits from equity-based compensation plans (12,324 ) (4,509 )
Deferred income taxes 3 (33 )
Deferred compensation and stock compensation 10,407 7,087
Other 617 (225 )
Changes in assets and liabilities:
Receivables (69,245 ) (99,310 )
Inventories 51,001 205,602
Income tax receivable/payable, net (84,205 ) 1,185
Other current assets (3,654 ) (3,443 )
Other long-term assets, net 1,297 (86 )
Accounts payable and accrued expenses (3,912 ) (71,430 )
Other current liabilities (24,498 ) (5,094 )
Other long-term liabilities   28,599     678  
Net cash provided by operating activities 142,408 272,676
 
Cash flows from investing activities:
Change in restricted cash (158 ) (537 )
Acquisition, net of cash acquired (180,698 )
Capital expenditures for fixed assets (100,303 ) (60,822 )
Other investing activities   (1,273 )   770  
Net cash used in investing activities (282,432 ) (60,589 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under compensation plans 3,170 1,683
Repurchase of common stock (80,898 ) (122,464 )
Excess tax benefits from equity-based compensation plans 12,324 4,509
Payments on capital lease and financing obligations (853 ) (462 )
Repayment of long-term debt (4,690 ) (3,154 )
Dividends paid (40,580 )
Other financing activities   (140 )   26  
Net cash used in financing activities (111,667 ) (119,862 )
 
Effect of exchange rate changes on cash and cash equivalents (3,164 ) (3,652 )
 
Net (decrease) increase in cash and cash equivalents (254,855 ) 88,573
Cash and cash equivalents at beginning of period   761,214     260,092  
Cash and cash equivalents at end of period $ 506,359   $ 348,665  
 
Supplemental disclosures of cash flow information:

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

$ 68,292 $ 21,112
Dividends declared not paid at the end of each period $ 46,594 $ 37,188
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations $ 375 $ 12,148
 

           

KEURIG GREEN MOUNTAIN, INC.

GAAP to Non-GAAP Reconciliation

(Dollars in thousands, except per share data)

 
Thirteen weeks ended
December 27, 2014 December 28, 2013
Selling and operating expenses $ 176,522 $ 168,215
General and administrative expenses   71,673     69,206  
Total SG&A $ 248,195   $ 237,421  
Expenses related to SEC inquiry (1) (1,394 ) (372 )
Amortization of identifiable intangibles (2) (10,110 ) (11,152 )
Expenses related to antitrust litigation (3)   (2,301 )    
Non-GAAP SG&A $ 234,390   $ 225,897  
 
Thirteen weeks ended
December 27, 2014 December 28, 2013
Operating income $ 215,927 $ 226,626
Expenses related to SEC inquiry (1) 1,394 372
Amortization of identifiable intangibles (2) 10,110 11,152
Expenses related to antitrust litigation (3)   2,301      
Non-GAAP operating income $ 229,732   $ 238,150  
 
Thirteen weeks ended
December 27, 2014 December 28, 2013
Net income attributable to Keurig $ 134,579 $ 138,227
After tax:
Expenses related to SEC inquiry (1) 896 236
Amortization of identifiable intangibles (2) 6,908 7,642
Expenses related to antitrust litigation (3)   1,480      
Non-GAAP net income attributable to Keurig $ 143,863   $ 146,105  
 
Thirteen weeks ended
December 27, 2014 December 28, 2013
Diluted income per share (EPS) $ 0.82 $ 0.91
After tax:
Expenses related to SEC inquiry (1) 0.01 0.00
Amortization of identifiable intangibles (2) 0.04 0.05
Expenses related to antitrust litigation (3)   0.01      
Non-GAAP EPS $ 0.88   $ 0.96  
 
(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.
(3) Represents legal expenses related to antitrust litigation classified as general and administrative expense.

Keurig Green Mountain
For Media:
Suzanne DuLong, 781-418-8075
pr@keurig.com
or
For Investors:
Kristi Bonner, 646-762-8095
Investor.Services@keurig.com

Source: Keurig Green Mountain

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