Keurig Green Mountain: Announces Q1/2015 Results

Waterbury / VT. (kgm) Keurig Green Mountain Inc., a leader in specialty coffee, coffee makers, teas, and other beverages with its innovative brewing technology, 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.

Net Sales by Product

Net sales of 1.4 billion USD 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 three 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 one percentage point from foreign currency exchange rates. Excluding the impact of foreign currency exchange rates and SAP pre-ordering, total net sales grew approximately four percent and total Keurig beverage system sales grew approximately five percent. Net sales for the U.S. segment increased two percent while sales of the Canada segment declined twelve percent on a reported basis and six percent excluding the impact of foreign currency exchange rates. Total portion pack net sales increased nine percent in the quarter while brewers and accessories net sales declined 18 percent. Total net sales growth was negatively impacted by a 17 percent decrease in other product net sales in the quarter.

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 USD, 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 percent last quarter and a share repurchase authorization which stands at 1.1 billion USD at the end of the first quarter».

Share Repurchases

During the first quarter, the Company repurchased a total of 586’000 shares at a cost of 81 million USD. 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 USD for a total cost of 1’188 million USD. This was achieved through a combination of the previously announced ASR, open market purchases and 10(b)5-1 plans, including 490 million USD 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 USD 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

  • Net sales growth in the mid-single to high-single digits compared to fiscal year 2014
  • An annual effective tax rate of approximately 34 percent to 35 percent
  • Non-GAAP EPS growth of mid-single digits. This outlook:
    • Includes an approximate 0.27 USD dilutive impact from the fiscal 2014 Coca-Cola and Lavazza Equity Transactions
    • Includes an estimated 0.15 USD headwind from foreign currency exchange
    • Excludes any additional actions the Company may take to offset dilution during fiscal year 2015
    • Excludes the amortization of identifiable intangibles related to the Company´s acquisitions and legal and accounting expenses related to the Company´s pending securities and stockholder derivative class action litigation and antitrust litigation
  • Free cash flow in the range of 225 million USD to 325 million USD
  • Capital investment in the range of 425 million USD to 475 million USD

Second Quarter 2015

  • Net sales growth in the mid-single digits over the second quarter of fiscal year 2014
  • An effective tax rate of approximately 36 percent to 37 percent
  • Non-GAAP EPS in a range of 1.00 USD to 1.05 USD which:
    • Includes an approximate 0.08 USD dilutive impact of the fiscal 2014 Coca-Cola and Lavazza Equity Transactions
    • Includes an estimated 0.07 USD headwind from foreign currency exchange
    • Excludes any additional actions the Company may take to offset dilution during the quarter
    • Excludes the amortization of identifiable intangibles related to the Company´s acquisitions and legal and accounting expenses related to the Company´s pending securities and stockholder derivative class action litigation and antitrust litigation