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May 17, 2002

USA: Green Mountain Coffee sees net income up 9.3% in Q2

Waterbury, Vermont-based specialty coffee producer Green Mountain Coffee (GMC) yesterday [Thursday] reported sales and earnings for its twelve-week Q2, ended 13 April 2002. Total coffee pounds shipped for the quarter increased 8.7% to 3,166,000 pounds in the Q2, compared to 2,913,000 pounds in the prior year. Net sales increased 1.2% year-over-year to US$23m compared to US$22.7m. The difference between coffee pounds growth and dollar sales growth was due primarily to changes in sales mix, said GMC, driven by the continued successful expansion of business with Exxon Mobil Corporation convenience stores (ExxonMobil). The sales agreement with ExxonMobil, effective since February 2001, provides for lower coffee sales prices and a reduction in its direct purchases of accessories such as cups and lids, offset by lower delivery and ordering costs for GMC.

Waterbury, Vermont-based specialty coffee producer Green Mountain Coffee (GMC) yesterday [Thursday] reported sales and earnings for its twelve-week Q2, ended 13 April 2002.

Total coffee pounds shipped for the quarter increased 8.7% to 3,166,000 pounds in the Q2, compared to 2,913,000 pounds in the prior year. Net sales increased 1.2% year-over-year to US$23m compared to US$22.7m. The difference between coffee pounds growth and dollar sales growth was due primarily to changes in sales mix, said GMC, driven by the continued successful expansion of business with Exxon Mobil Corporation convenience stores (ExxonMobil). The sales agreement with ExxonMobil, effective since February 2001, provides for lower coffee sales prices and a reduction in its direct purchases of accessories such as cups and lids, offset by lower delivery and ordering costs for GMC.

GMC delivered its strongest Q2 growth in the supermarket and convenience store channels, where coffee pounds shipped increased 21.8% and 9.9%, respectively. In the supermarket channel, growth was led by expansion of sales to two customers: Price Chopper, with an increase of 73 store locations, and Kings Super Markets, which added GMC’s complete bulk, pre-bag and cup coffee program to its 30 locations this past fall. Growth in the convenience store channel continued to be led by sales to ExxonMobil stores. Growth in these channels was offset by a 6.9% reduction in coffee pounds shipped in the office coffee service (OCS) channel for the quarter.

GMC’s gross profit margin improved 1.1 percentage points to 43.2% of sales, compared to 42.1% of sales in the prior year, an improvement due primarily to a higher percentage of GMC’s total sales being coffee compared to allied products such as cups and lids, and from a shift to higher margin coffee products. Operating expenses as a percentage of sales were 33.3%, compared to 32.4% in Q2 2001, an increase due to higher sales compensation expenses related to being fully staffed. Operating margins improved 0.2 percentage points to 9.9% of sales compared to 9.7% of sales a year ago, and GMC achieved a 9.3% year-over-year increase in net income. Earnings per share were US$0.18 for the Q2 2002 compared to US$0.17 for the Q2 2001.

During the H1 2002, GMC experienced a 10.8% increase in coffee pounds shipped compared to the same period last year. Sales were up 3.2% to US$55.37m, compared to US$53.64m for the H1 2001. Net income increased 17.8% to US$3.57m, or US$0.49/share, from US$3.03m, or US$0.43/share, for the H1 2001.

Chairman, president and CEO Robert P. Stiller said: “During the Q2, we increased our ownership interest in Keurig, Incorporated (Keurig) and we expect to own approximately 42% of Keurig’s total outstanding equity. We believe it is an opportune investment.”

Stiller added: “During the quarter we began a three-part, employee-training course entitled Understanding your Ownership in GMCR – Infinite Possibilities that is expected to be completed by all of our employees in early June. Most employees are stockholders through our employee stock ownership plan, employee stock purchase plan or stock option plans. We believe our investment in this training, along with other intensive sales force training that is taking place concurrently, will leverage the energy, initiative and creativity of our over 500 employees.”

CFO William G. Hogan said: “We are focused now on reinvigorating our overall top line growth with a strategy that builds on the strength of the supermarket and convenience store channels, and revives our growth in the office coffee services channel.”

Hogan continued: “In pursuing this growth, we have the benefit of operating from a position of financial strength. EBITDA grew 5.1% to US$3.2m from US$3.05m in the Q2 2001 and EBITDA for the H1 is up 12.2% over last year. In addition, free cash flow for the H1 increased to US$3.59m from US$1.65m for the comparable fiscal 2001 period.”

Hogan added: “We continued to account for our investment in Keurig on the cost method in the Q2 since GMC owned less than 20% of Keurig at the end of the quarter. The company will record this investment using the equity method in future quarters, and estimates that the equity method accounting of its Keurig investment will have a negative impact on earnings per share in the range of US$0.04-0.06 for the FY.”

Hogan continued: “Looking forward, we now anticipate FY 2002 growth in coffee pounds shipped will be in a range of 11% to 13%, and dollar sales growth in the range of 6% to 8%. In addition, we currently anticipate that our year-on-year growth in the Q3 in coffee pounds shipped will be in the range of 10% to 13%, and in dollar sales to be in the range of 8% to 10%. We now expect, excluding the future impact of the equity method for our Keurig investment, FY earnings per share to be in the range of US$0.94-0.97. Q3 earnings per share are expected to be in the range of US$0.19-0.21.”

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