Keurig Green Mountain, Inc.
May 6, 2015
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Keurig Green Mountain Reports Fiscal Second Quarter 2015 Results

WATERBURY, Vt.--(BUSINESS WIRE)-- Keurig Green Mountain, Inc. (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 March 28, 2015.

"We are pleased to report that our earnings per share in the second quarter were in line with our guidance. Our top-line growth, however, was below our expectations primarily due to the slower than expected transition to the Keurig 2.0 system. We are taking actions to reduce brewer inventories, enhance our 2.0 brewer packaging to better communicate our extensive brand variety and step up innovation on our owned brands," said President and CEO, Brian Kelley.

"Although we are lowering our guidance to reflect the impact of near-term challenges related to this complex product transition, we remain highly confident in our long term strategy for the Keurig hot system and continue to believe there is a significant runway of opportunity. Combined with the upcoming launch of our Keurig KOLD system, we expect the Keurig brand to further expand and globalize while continuing to transform the premium home beverage experience for consumers," continued Kelley.

Second Quarter Fiscal 2015 Financial Review

($ in millions except per share data)       Thirteen weeks ended           Twenty-six weeks ended    
March 28, 2015     March 29, 2014  

%
Change

  March 28, 2015     March 29, 2014

%
Change

 
Net sales $ 1,127.1 $ 1,103.1 2 % $ 2,513.5 $ 2,489.7 1 %
Operating income:
GAAP $ 244.0 $ 260.5 (6 )% $ 459.9 $ 487.1 (6 )%
Non-GAAP $ 258.0 $ 271.8 (5 )% $ 487.7 $ 510.0 (4 )%
Net income attributable to Keurig:
GAAP $ 155.5 $ 162.1 (4 )% $ 290.1 $ 300.3 (3 )%
Non-GAAP $ 166.0 $ 169.8 (2 )% $ 309.9 $ 315.9 (2 )%
Diluted income per share (EPS):
GAAP $ 0.97 $ 1.03 (6 )% $ 1.79 $ 1.94 (8 )%
Non-GAAP $ 1.03 $ 1.08 (5 )% $ 1.91 $ 2.04 (6 )%
Cash dividends declared per common share $ 0.2875 $ 0.25 15 % $ 0.5750 $ 0.50 15 %

Note: See complete GAAP to Non-GAAP Reconciliation tables attached to this release.

Net Sales by Product

Net sales of $1.1 billion increased 2% versus the prior year period primarily driven by growth in sales of pods (previously referred to as portion packs) partially offset by lower brewer and accessory sales. Foreign currency exchange rates negatively impacted sales by approximately 1 percentage point. Excluding the impact of foreign currency exchange rates, total net sales grew 3% and total Keurig beverage system sales grew 4% compared to the prior year period.

Net sales for the domestic segment increased 3% in the quarter while sales in the Canada segment declined 5% on a reported basis and grew 6% excluding the impact of foreign currency exchange rates.

Total pod net sales increased 7% in the quarter while brewers and accessories net sales declined 23%. Other product net sales declined 5% compared to the prior year period.

             
Net Sales by Product Net sales (in millions)
Thirteen weeks ended
March 28, 2015     March 29, 2014

$ Increase
(Decrease)

% Increase
(Decrease)

Pods $ 956.6 $ 898.2 $ 58.4 7 %
Brewers and accessories   106.4   137.6   (31.2 ) (23 )%
Subtotal 1,063.0 1,035.8 27.2 3 %
Other products   64.1   67.3   (3.2 ) (5 )%
Total net sales $ 1,127.1 $ 1,103.1 $ 24.0   2 %
 

Pods

Brewers and Accessories

Other Products

     

Change from
Q2 2014 to
Q2 2015

Shift in sales mix between pods, brewers and accessories and other products +260 bps
Higher obsolescence expense of finished goods -220 bps
Unfavorable green coffee costs -180 bps
Decrease in pod packaging material costs +100 bps
Logistics productivity +100 bps
Mix associated with pods -80 bps
Mix associated with brewers -60 bps
 

Balance Sheet & Cash Flow Highlights

             
Balance Sheet & Cash Flow Highlights ($ in millions) March 28, 2015 March 29, 2014 % Change  
Cash and cash equivalents, including restricted cash $ 127.0 $ 1,112.6 (89 )%
Accounts receivables, net $ 524.3 $ 430.5 22 %
Inventories $ 724.7 $ 451.1 61 %
Raw material inventories $ 211.6 $ 146.3 45 %
Finished goods $ 513.1 $ 304.8 68 %
Brewers & accessories $ 343.4 $ 145.3 136 %
Pods $ 156.8 $ 135.3 16 %
Other $ 12.9 $ 24.2 (47 )%
Debt outstanding and capital lease and financing obligations $ 534.1 $ 269.1 98 %
Twenty-six weeks net cash provided by operating activities $ 368.0 $ 593.6 (38 )%
Twenty-six weeks free cash flow (1) $ 133.1 $ 474.6 (72 )%

(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 second quarter of fiscal 2015, the Company repurchased a total of 7.0 million shares at a cost of $837 million. From the inception of its Board authorized share repurchase program through the end of the second quarter, the Company repurchased a total of 25.9 million shares at an average price of $86.17 for a total cost of $2.2 billion. This was achieved through a combination of the ASR program, open market purchases and 10(b)5-1 plans, and the previously announced repurchase of 5.2 million shares from Luigi Lavazza S.p.A.

Dividend Declaration

Keurig's Board 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 July 30, 2015 to shareholders of record as of the close of business on June 30, 2015.

Business Outlook and Other Forward-Looking Information

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

Fiscal Year 2015

Third 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 pod sizes, including K-Cup®, Vue® K-Carafe® and Bolt® pods, 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 (collectively 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, May 6, 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 5171920 from 9:00 p.m. ET on May 6, 2015 through 9:00 p.m. ET on Monday, May 11, 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, pending antitrust litigation against the Company, and the now concluded SEC inquiry; 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 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 (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 that 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 28,
2015

     

September 27,
2014

Assets
Current assets:
Cash and cash equivalents $ 97,553 $ 761,214
Restricted cash and cash equivalents 29,474 378
Short-term investment 100,000
Receivables, less uncollectible accounts and return allowances of $48,581 and $66,120 at March 28, 2015 and September 27, 2014, respectively 524,327 621,451
Inventories 724,727 835,167
Income taxes receivable 15,548
Other current assets 73,533 69,272
Deferred income taxes, net   60,888     58,038  
Total current assets 1,526,050 2,445,520
 
Fixed assets, net 1,287,640 1,171,425
Intangibles, net 457,719 365,444
Goodwill 764,352 755,895
Deferred income taxes, net 206 131
Other long-term assets   18,718     58,892  
 
Total assets $ 4,054,685   $ 4,797,307  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 22,159 $ 19,077
Current portion of capital lease and financing obligations 2,900 2,226
Accounts payable 279,463 411,107
Accrued expenses 236,328 305,677
Income tax payable 53,586
Dividend payable 44,258 40,580
Deferred income taxes, net 350 340
Other current liabilities   10,430     10,395  
Total current liabilities 595,888 842,988
 
Long-term debt, less current portion 393,293 140,937
Capital lease and financing obligations, less current portion 115,711 116,240
Deferred income taxes, net 200,004 202,936
Other long-term liabilities 52,123 23,085
 
Commitments and contingencies
 
Redeemable noncontrolling interests 4,349 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 - 153,941,018 and 162,318,246 shares at March 28, 2015 and September 27, 2014, respectively 15,394 16,232
Additional paid-in capital 948,801 1,808,881
Retained earnings 1,894,731 1,687,619
Accumulated other comprehensive loss   (165,609 )   (54,051 )
Total stockholders' equity   2,693,317     3,458,681  
 
Total liabilities and stockholders' equity $ 4,054,685   $ 4,797,307  
 

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

Thirteen weeks ended

     

Twenty-six weeks ended

March 28,
2015

     

March 29,
2014

March 28,
2015

     

March 29,
2014

Net sales $ 1,127,184 $ 1,103,072 $ 2,513,542   $ 2,489,742
Cost of sales   668,376     645,640     1,590,612     1,568,263  
Gross profit 458,808 457,432 922,930 921,479
 
Selling and operating expenses 136,340 125,005 312,862 293,220
General and administrative expenses   78,491     71,941     150,164     141,147  
Operating income 243,977 260,486 459,904 487,112
 
Other income, net 169 1,253 350 1,682
Gain on financial instruments, net 3,579 2,900 6,924 7,461
Loss on foreign currency, net (8,813 ) (8,722 ) (17,884 ) (19,272 )
Interest expense   (281 )   (2,995 )   (1,368 )   (5,615 )
Income before income taxes 238,631 252,922 447,926 471,368
 
Income tax expense   (83,050 )   (90,609 )   (157,666 )   (170,580 )
Net income 155,581 162,313 $ 290,260 $ 300,788
 
Net income attributable to noncontrolling interests   102     229     202     477  
 
Net income attributable to Keurig $ 155,479   $ 162,084   $ 290,058   $ 300,311  
 
Net income attributable to Keurig per common share:
Basic $ 0.98 $ 1.05 $ 1.81 $ 1.98
Diluted $ 0.97 $ 1.03 $ 1.79 $ 1.94
 
Cash dividends declared per common share $ 0.2875 $ 0.25 $ 0.5750 $ 0.50
 
Weighted-average common shares outstanding:
Basic 158,969,696 153,945,441 160,575,947 151,552,422
Diluted 160,633,437 157,463,096 162,362,574 154,525,749
 

 
KEURIG GREEN MOUNTAIN, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
 
      Twenty-six
weeks ended
      Twenty-six
weeks ended
March 28, 2015 March 29, 2014
Cash flows from operating activities:
Net income $ 290,260 $ 300,788
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 101,721 104,222
Amortization of intangibles 23,168 21,942
Amortization of deferred financing fees 2,826 2,826
Unrealized loss on foreign currency, net 11,439 18,089
Loss (gain) on disposal of fixed assets 469 (842 )
Provision for doubtful accounts 4,473 1,575
Provision for sales returns 63,301 51,747
Gain on derivatives, net (9,543 ) (9,954 )
Excess tax benefits from equity-based compensation plans (20,489 ) (46,170 )
Deferred income taxes (141 ) (80 )
Deferred compensation and stock compensation 21,890 15,882
Other 2,148 (196 )
Changes in assets and liabilities, net of acquisition:
Receivables 23,387 (20,697 )
Inventories 99,460 219,417
Income tax receivable/payable, net (49,177 ) 27,408
Other current assets (4,131 ) 3,051
Other long-term assets, net 887 (498 )
Accounts payable and accrued expenses (197,573 ) (83,137 )
Other current liabilities 4,252 (9,133 )
Other long-term liabilities   (662 )   (2,620 )
Net cash provided by operating activities 367,965 593,620
 
Cash flows from investing activities:
Change in restricted cash (272 ) 128
Maturity of short-term investment 100,000
Acquisition, net of cash acquired (180,698 )
Capital expenditures for fixed assets (234,842 ) (118,978 )
Purchase of long-term investment (10,000 )
Other investing activities   (517 )   1,207  
Net cash used in investing activities (316,329 ) (127,643 )
 
Cash flows from financing activities:
Net change in revolving line of credit 265,000
Proceeds from sale of common stock 1,243,028
Proceeds from issuance of common stock under compensation plans 15,055 26,441
Repurchase of common stock (918,356 ) (880,816 )
Excess tax benefits from equity-based compensation plans 20,489 46,170
Payments on capital lease and financing obligations (1,545 ) (954 )
Repayment of long-term debt (9,381 ) (6,517 )
Dividends paid (87,191 ) (37,220 )
Other financing activities   (266 )   (180 )
Net cash used in financing activities (716,195 ) 389,952
 
Effect of exchange rate changes on cash and cash equivalents 898 (3,866 )
 
Net (decrease) increase in cash and cash equivalents (663,661 ) 852,063
Cash and cash equivalents at beginning of period   761,214     260,092  
Cash and cash equivalents at end of period $ 97,553   $ 1,112,155  
 
Supplemental disclosures of cash flow information:
Fixed asset purchases included in accounts payable and not disbursed at the end of each period $ 58,991 $ 43,431
Dividends declared not paid at the end of each period $ 44,258 $ 40,483
Noncash investing and financing activities:
Fixed assets acquired under capital lease and financing obligations $ 375 $ 25,930
 

 
KEURIG GREEN MOUNTAIN, INC.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands, except per share data)
 
      Thirteen weeks ended
March 28, 2015       March 29, 2014
Selling and operating expenses $ 136,340 $ 125,005
General and administrative expenses   78,491     71,941  
Total SG&A $ 214,831   $ 196,946  
Expenses related to SEC inquiry (1) (48 ) (546 )
Amortization of identifiable intangibles (2) (13,058 ) (10,789 )
Expenses related to antitrust litigation (3)   (931 )    
Non-GAAP SG&A $ 200,794   $ 185,611  
 
Thirteen weeks ended
March 28, 2015 March 29, 2014
Operating income $ 243,977 $ 260,486
Expenses related to SEC inquiry (1) 48 546
Amortization of identifiable intangibles (2) 13,058 10,789
Expenses related to antitrust litigation (3)   931      
Non-GAAP operating income $ 258,014   $ 271,821  
 
Thirteen weeks ended
March 28, 2015 March 29, 2014
Net income attributable to Keurig $ 155,479 $ 162,084
After tax:
Expenses related to SEC inquiry (1) 31 348
Amortization of identifiable intangibles (2) 9,884 7,334
Expenses related to antitrust litigation (3)   607      
Non-GAAP net income attributable to Keurig $ 166,001   $ 169,766  
 
Thirteen weeks ended
March 28, 2015 March 29, 2014
Diluted income per share (EPS) $ 0.97 $ 1.03
After tax:
Expenses related to SEC inquiry (1) 0.00 0.00
Amortization of identifiable intangibles (2) 0.06 0.05
Expenses related to antitrust litigation (3)   0.00      
Non-GAAP EPS $ 1.03   $ 1.08  
 

(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.

      Twenty-six weeks ended
March 28, 2015       March 29, 2014
Selling and operating expenses $ 312,862 $ 293,220
General and administrative expenses   150,164     141,147  
Total SG&A $ 463,026   $ 434,367  
Expenses related to SEC inquiry (1) (1,442 ) (918 )
Amortization of identifiable intangibles (2) (23,168 ) (21,941 )
Expenses related to antitrust litigation (3)   (3,232 )    
Non-GAAP SG&A $ 435,184   $ 411,508  
 
Twenty-six weeks ended
March 28, 2015 March 29, 2014
Operating income $ 459,904 $ 487,112
Expenses related to SEC inquiry (1) 1,442 918
Amortization of identifiable intangibles (2) 23,168 21,941
Expenses related to antitrust litigation (3)   3,232      
Non-GAAP operating income $ 487,746   $ 509,971  
 
 
 
Twenty-six weeks ended
March 28, 2015 March 29, 2014
Net income attributable to Keurig $ 290,058 $ 300,311
After tax:
Expenses related to SEC inquiry (1) 927 584
Amortization of identifiable intangibles (2) 16,792 14,976
Expenses related to antitrust litigation (3)   2,087      
Non-GAAP net income attributable to Keurig $ 309,864   $ 315,871  
 
Twenty-six weeks ended
March 28, 2015 March 29, 2014
Diluted income per share (EPS) $ 1.79 $ 1.94
After tax:
Expenses related to SEC inquiry (1) 0.01 0.00
Amortization of identifiable intangibles (2) 0.10 0.10
Expenses related to antitrust litigation (3)   0.01      
Non-GAAP EPS $ 1.91   $ 2.04  
 

(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, Inc.
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, Inc.

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