Green Mountain Coffee Roasters, Inc. (GMCR) Wednesday reported a decline in profit for the first quarter of fiscal 2010. Adjusted earnings, however, increased from last year helped by an increase in net sales due to the higher demand for K-Cups and Keurig brewers. Looking ahead, the company lifted its earnings and revenue estimate for the second quarter and fiscal year 2010.
Net income for the first quarter declined to $12.5 million or $0.27 per share from $14.4 million or $0.37 per share in the year-ago period.
In the recent quarter, the company incurred about $5.0 million of transaction expenses related to the acquisition of Timothy's Coffees of the World, Inc., which was completed on November 13, 2009, and from the pending acquisition of Diedrich Coffee, Inc. (DDRX)
The Waterbury, Vermont-based company's acquisition of Diedrich Coffee is waiting for approval from the U.S. Federal Trade Commission, which on January 13 had requested additional information on the $35.00 per share cash tender offer to purchase all the outstanding shares of Diedrich common stock by Pebbles Acquisition Sub, Inc., a wholly owned subsidiary of Green Mountain Coffee.
Excluding the favorable impact of a pre-tax $17 million or $0.27 per share patent litigation settlement in the prior year quarter, net income increased to $12.5 million from $4.0 million in the year-ago period. Earnings per share was $0.27, compared to $0.10 in the same quarter last year.
On an average, 10 analysts polled by Thomson Reuters expected the company to earn $0.16 per share for the first quarter. Analysts' estimates typically exclude one-time items.
Green Mountain's first quarter net sales rose 77% to $349.4 million from $197.0 million in the same quarter last year, contributed by a 101% increase in total K-Cup net sales and 86.5% increase in Keurig brewer and accessories sales. In the past quarter, about 87% of consolidated sales was from the Keurig Brewing System and its recurring K-Cup portion pack revenue.
Analysts had a consensus revenue estimate of $329.63 million for the quarter.
Keurig business unit net sales for the first quarter, after the elimination of inter-company sales, was $217.8 million, up 106% from $105.6 million in the same quarter last year, due to strong At Home brewer and accessories sales and a 158% increase in K-Cup sales to retailers and to consumers from Keurig.com. In addition, royalty income from the sale of K-Cups from third party licensed roasters totaled $11.0 million, an increase of $2 million over the prior year quarter.
Specialty Coffee business unit or SCBU net sales grew 44% to $131.6 million from $91.3 million in the same quarter last year.
During first quarter, 650 million K-Cup portion packs were shipped system-wide by all Keurig licensed roasters, up 82% over the year-ago quarter. Keurig brewers shipped 1.4 million compared to 0.7 million in the prior year quarter.
Gross profit increased to 29.1% of total net sales compared to 27.1% in the year-ago period, mainly due to improved SCBU gross margin driven by manufacturing efficiencies combined with the higher manufacturing gross margin due to the increase in volume of SCBU manufactured K-Cups as a percentage of total system volume.
Operating income was $23.1 million, up from from $8.0 million in the same quarter last year. Operating margins as a percentage of net sales improved to 6.6% from 4.0% in the prior year period.
The company's tax rate increased to 43.0% from 38.9% in the prior year quarter, due to a portion of the acquisition-related expenses not being deductible for tax purposes.
Looking forward, Green Mountain Coffee raised its earnings expectations for the second quarter to a range of $0.56 to $0.61 per share from prior year guidance of $0.33 per share. Estimates include $2.3 million pre-tax or $0.03 per share non-cash amortization expenses related to the identifiable intangibles of the company's acquisitions and exclude any one-time acquisition-related transaction expenses for the pending Diedrich acquisition. Net sales growth is expected to be 64% to 69%
Analysts expect the company to earn $0.57 per share on revenues of $312.36 million for the second quarter.
For the full year 2010, the company expects earnings in the range of $1.95 to $2.05 per share, up from prior guidance of $1.85 to $1.95 per share. The earnings per share estimates include $11 million pre-tax or $0.15 per share non-cash amortization expenses related to the identifiable intangibles of the company's acquisitions and exclude one-time acquisition-related transaction expenses for the pending Diedrich acquisition.
Revenue for the full year is estimated to grow 57% to 62%, from the previous estimate of 55% to 60%.
Wall Street analysts expect earnings of $1.91 per share on revenues of $1.27 billion for the fiscal 2010.
GMCR closed Wednesday's regular trading at $80.02, down $0.23 or 0.29% on a volume of 1.78 million on the Nasdaq. In the after hours the stock rose 2.60% or $2.08 trading at $82.10.
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