GMCR

Portion Packs Still in Strong Demand at Green Mountain; Free Cash Flow Surges in Fiscal 2013

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On Thursday, Green Mountain (GMCR) reported excellent fiscal fourth-quarter results. Fourth-quarter revenue advanced 22% from the same period a year ago (52-to-52 weeks) thanks to robust brewer sales and portion pack revenue growth (up 11% and 21%, respectively, as adjusted). The 21% increase in portion packs revenue was driven by a 26% increase in unit volume offset by pricing and mix. Portion packs revenue accounted for 74.2% of total net sales in the fiscal fourth quarter. The company’s gross margin expanded 240 basis points during the quarter, to 36%, thanks primarily to favorable green coffee costs and lower labor and overhead manufacturing costs. Non-GAAP operating income advanced to 18.2% of sales in the period from 16.4% in last year’s quarter. … Read more

Three Very Good Questions From Members

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Q: Why do you use a risk free rate assumption of 4.25% when the current spot rate of the 10-year Treasury is about 2%? In our discounted cash-flow models that we use to value every non-financial operating company in our coverage universe, we match the duration of future free cash flows (from year 1 to perpetuity) with expectations of the average discount rate over this forecast horizon (from year 1 to perpetuity). We think the best way to achieve expectations of the long-term future average rate of the 10-year Treasury (risk free rate) is to use the weighted average of the historical 10-year Treasury and the current spot rate. The goal of using a weighted average risk free rate in … Read more

Green Mountain Posts Strong Revenue Growth

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The much maligned Green Mountain (click ticker for report: ) reported better than anticipated fourth quarter results Tuesday afternoon. Revenue surged 33% year-over-year to $946.7 million, which was better than expected, though boosted by an additional selling week. Earnings, helped by a 3.1 million-share stock-buyback, grew 36% year-over-year to a better-than-expected $0.64 per share, on a non-GAAP basis. One of the firm’s largest concerns, inventories, grew 14% year-over-year, which was much slower than the sales rate. Considering the SEC inquiry into the company’s accounting practices, we’ve been particularly focused on the firm’s financial statements. Accounts payable increased only 5% year-over-year, though we did see meaningful spikes in accrued expenses (up 44% year-over-year) and current income tax payable (up 204% year-over-year). … Read more

Di-worsification? That Could Be the Starbucks/Teavana Deal

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Last Wednesday, Starbucks (click ticker for report: ) announced that it will acquire tea retailer Teavana (TEA) for $15.50 per share in an all cash transaction valued at $620 million. The deal is expected to add one cent to Starbucks’ earnings in 2013. Though the deal represented a significant premium to the recent share price, the acquisition price is below Teavana’s IPO price, which will certainly set off some shareholder lawsuits. We’re more interested in the impact it will have on Starbucks. Unlike the recent lack of innovation we’ve seen at a company such as McDonald’s (click ticker for report: ), Starbucks hasn’t been afraid to make drastic moves to drive store traffic and keep the brand relevant. In addition … Read more

Placing Green Mountain’s Fair Value Under Review

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There are stocks with bull and bear arguments, and then there’s Green Mountain Coffee Roasters (GMCR). A lot of shorts recently became interested in the stock when hedge-fund manager David Einhorn released a presentation detailing his bearish argument against the firm. The company’s shares went into a large slide, losing over 50% of its value from that time. That was, until it reported a first quarter earnings beat, fueled by a divestiture of its “Filterfresh” brand and Green Mountain rallied back to $70 per share. Oh, and then of course, Starbucks (SBUX) recently announced the creation of its own single-serve espresso machine, which is an adjacent product of the Keurig single-serve coffee machine, sending Green Mountain’s shares tumbling back towards … Read more