Green Mountain Coffee, has reported quarterly sales and earnings for the Company’s fiscal first quarter of 2002, the sixteen-week period ended 19 January 2002.
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Total coffee pounds shipped for the quarter increased 12.4% to 4,255,000 pounds for the Q1, compared to 3,784,000 pounds in the previous year. Net sales increased 4.7% year-over-year to US$32,357,000 compared to US$30,905,000 for the prior year quarter. The difference between coffee pounds growth and dollar sales growth was due primarily to changes in sales mix, created largely by the successful expansion of the Company’s business with Exxon Mobil Corporation convenience stores (ExxonMobil.) A new agreement with ExxonMobil, effective since February 2001, involves lower coffee sales prices and a reduction in their direct purchases of accessories such as cups and lids, offset by lower delivery and ordering costs for Green Mountain Coffee.
The Company’s strongest growth was in the convenience store and supermarket channels, where coffee pounds shipped increased 17.8% and 16.5%, respectively. In the convenience store channel, sales to ExxonMobil, and to its distributor, McLane Company, represented approximately 74% of the channel’s growth. In the supermarket channel, approximately 64% of the pound growth stemmed from the addition of sales to two customers: Kings Super Markets, which was announced in October of 2001, and Fred Meyer Supermarkets, which became a customer as a result of last year’s acquisition of Frontier® Organic Coffee. Sales growth with two existing customers, Shaw’s and Hannaford Bros., also contributed substantially to supermarket channel growth for the quarter. By contrast, overall growth in the office coffee service (OCS) channel was more impacted by the softening economy, and experienced a year-over-year increase of only 3.1% in coffee pounds shipped.
Green Mountain Coffee’s gross profit margin improved 4.2 percentage points to 44.7% of sales, compared to 40.5% of sales in the year ago period. The company benefited from lower year-over-year green coffee commodity prices and from a higher percentage of its total sales being coffee compared to allied products, such as cups and lids. Operating expenses as a percentage of sales were 32.8%, compared to 30% in the prior year quarter, primarily due to higher marketing and sales expenses, offset, in part, by a reduction in certain discretionary personnel expenses. Operating margins improved 1.4 percentage points to 11.9% of sales compared to 10.5% of sales a year ago, and the Company achieved a 23.4% year-over-year increase in net income. Earnings per share were US$0.31 for the Q1 compared to US$0.26 for the previous year.
Robert P. Stiller, Chairman, President, and CEO of Green Mountain Coffee said: “Today we are operating in a more difficult economy, where I believe Green Mountain Coffee’s focus on superior execution – in terms of providing consistently outstanding customer service and support as well as the more operational facets of our business – is even more of a competitive advantage. In addition, our multi-channel business model gives us the flexibility to adapt to the changing opportunities created by an economic downturn or resurgence. We have announced some major initiatives that reflect this long-term approach to continue profitably growing our business: our expansion with two supermarket chains, Kings Super Markets in October and, announced just last week, Price Chopper Supermarkets; and our purchase of shares of Keurig, Inc., and the acquisition of options to increase our equity ownership in Keurig, Inc., the developer and manufacturer of the premium one-cup brewing system for the office and eventually for the home. The third major element, in terms of how we distinguish ourselves at Green Mountain Coffee, is our commitment to preserving the environment and to being socially responsible. Increasingly, I believe consumers want to support companies that share their goals and values with the purchase of products such as Fair Trade and organic coffees. In fact, our goal is to become the largest supplier of Fair Trade coffee in the United States. While the challenges are greater than ever today, so too are the opportunities to distinguish ourselves and succeed.”
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By GlobalDataRobert D. Britt, VP of Finance and Treasurer, said: “This past quarter, Green Mountain Coffee once again delivered very good earnings growth to its stockholders. However, while our sales and coffee pounds shipped growth rates ramped up from the most recent previous quarter – our fiscal fourth quarter of 2001 – our top line growth is still considerably below what we are seeking to achieve. With the exception of one large office coffee distributor for which sales, we believe, were temporarily limited due to a number of issues, the OCS channel would have grown 7.8% and, in fact, showed several pockets of strong growth. That said, the slowdown in the office coffee service channel due to the economy has been greater than we had expected.
“In addition, so far this year our sales to the smaller, more regional and local businesses – such as non-national convenience stores, non-chain supermarkets, specialty retail stores, and restaurants – have not increased as much as we had anticipated. Taken together, these smaller businesses represent over a third of our sales, and they play an important role in our growth. We have taken steps to improve the leadership, training, incentives and customer programs for our geographic sales force who sell to these customers, and hope to see more growth from them by at least the latter part of this fiscal year.
“Taking all these factors into account, we now anticipate full-year fiscal 2002 growth in coffee pounds shipped will be in a range of 11% to13%, and dollar sales growth in the range of 5% to 7%. We continue to expect growth to be stronger in the Q3 and Q4 of this fiscal year, than in the first two quarters. In fact, we currently anticipate that our year on year growth in the Q2 in coffee pounds shipped will be in the range of 2% to 4%, and we believe our dollar sales growth could actually be down, year-over-year, by 3% to 5%. Our expectations reflect, in part, the initial ramp up of sales to McLane Distribution in last year’s Q2 and Q3 as part of our then new agreement with ExxonMobil convenience stores.
“Looking forward, the Company now expects full-year earnings per share to be in the range of US$0.93 to US$0.98 prior to the impact, if any, of any equity method income or loss it may need to record related to our anticipated purchase of additional Keurig, Inc., equity. This guidance compares to Green Mountain Coffee’s previous statements that we expected earnings per share for fiscal 2002 to be in the range of US$0.95 to US$1.
“Green Mountain Coffee is taking steps to reduce certain discretionary expenses, where possible, in order to preserve earnings growth for the year. For instance, the Company has moved back the schedule for its production capacity expansion program.”
Britt concluded: “In addition to strong, reported earnings growth, the Company’s cash flow and balance sheet continue to reflect the health of the business. Earnings from continuing operations before interest, taxes, depreciation and amortization grew 17.3% to US$5,054,000 from US$4,310,000 in the first quarter of fiscal 2001. The Company’s days sales outstanding of accounts receivable also improved in the Q1 to 31.1 days down from 37.5 days at the end of the Q4 of fiscal 2001.”
