Green Mountain Coffee Roasters Inc. (

GMCR

)

Q3 2011 Earnings Call

July 27, 2011 5:00 PM ET

Executives

Suzanne DuLong – Vice President, Investor Relations and Corporate Communications

Larry Blanford – President and CEO

Fran Rathke – Chief Financial Officer

TJ Whalen – Vice President, Marketing, Specialty Coffee Business Unit

John Whoriskey – General Manager, Keurig At Home Division

Analysts

Akshay Jagdale – KeyBanc Capital Markets

Scott Van Winkle – Canaccord Adams

Greg McKinley – Dougherty & Co.

Mitch Pinheiro – Janney Capital Markets

Bill Chappell – Suntrust Robinson Humphrey

Bryan Spillane – Bank of America

Mark Astrachan – Stifel Nicolaus

Jon Andersen – William Blair & Company

Tony Brenner – Roth Capital Partners

Alton Stump – Longbow Research

Presentation

Operator

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Good afternoon. And welcome to the Green Mountain Coffee Roasters Incorporated Fiscal 2011 Third Quarter Conference Call. Today’s calling is being recorded. At this time, I’d like to turn the call over to the company’s Vice President of Investor Relations and Corporate Communications, Suzanne DuLong. Suzanne, please go ahead.

Suzanne DuLong

Thank you, Patrick. Welcome everyone. Today’s press release is available on our website at www.gmcr.com. Consistent with past quarters our prepared remarks have been furnished in a Form 8-K filed with the SEC and will not be read on today’s call.

On today’s call our President and CEO Larry Blanford will provide some inductor remarks reviewing the quarter’s results and our business. Following Larry’s remarks we will open the call to questions from the sell side analysts. Several members of our management team are with us for today’s Q&A session, including Fran Rathke, our CFO; TJ Whalen, our Vice President of Marketing for the Specialty Coffee Business Unit; and John Whoriskey, our General Manager of the Keurig At Home Division. Due to scheduling conflicts Scott McCreary and Michelle Stacy cannot be with us today, but the rest of the team will address your questions. Due to time constraints and to make sure we have the opportunity to address everyone’s question during the call we ask that you limit yourself to one question. If time permits we will revisit the queue for follow-up questions.

Finally, I’ll remind everyone that certain statements will be made today which are forward-looking within the meaning of Securities Laws. Owing to the uncertainties of forward-looking statements our actual results may differ materially from anything projected in these forward-looking statements. We can give no assures as to their accuracy and we assume no obligation to update them. For further information on risks and uncertainties please read the company’s SEC filings and the paragraph in today’s press release that begins with the words certain statements.

And now, I’ll turn the call over to our President and CEO, Larry Blanford.

Larry Blanford

Thanks, Susan and hello, everyone. We appreciate your joining us today to discuss our fiscal third quarter results. I’m thrilled to report we delivered net sales of $717.2 million, a growth rate of 127% over the same period in fiscal 2010. Our non-GAAP earnings per diluted share increased 140% to $0.49 in the third quarter of fiscal 2011, up from $0.21 in the third quarter of fiscal 2010 and exceeded our guidance range largely as a result of stronger than anticipated portion pack driven revenue growth in the quarter.

In addition to continued strong consumer adoption of the Keurig single-cup brewing system, we believe our third quarter results benefitted from our heighted spring advertising and brand support programs. These programs were designed to raise awareness of the Keurig single-cup brewing system and our Brew Over Ice, Perfect Iced Tea and Iced Coffee’s, as we headed into the summer month. Our nationwide television advertising was supported by in-store demonstrations and other merchandising all emphasizing Brew Over Ice as another opportunity to use the Keurig single-cup brewer.

We had a very positive retailer reaction to our efforts and we believe the combination of advertising and retailer merchandising helped derive both portion pack and brewer sales in the quarter. In fact, while still (inaudible) concept in effort during our spring promotional period, Brew Over Ice portion packs represented approximately 5% to 6% of total portion packs sold through our specialty and mass channels during the promotional period.

While difficult to quantify, we also believe we saw a bit of catch-up effect from Q1 and Q2 in our fiscal Q3, as we have continued to add portion pack production capacity in Q3, we were able to fulfill customer demand that has pent-up in the system over the prior two quarters.

Approximately 82% of consolidated net sales in the third quarter were from the Keurig Single-Cup Brewing system and its recurring portion pack revenue including Keurig related accessory sales. This percentage is down from the roughly 88% in the year ago period as a result of the addition of the Van Houtte related revenue to consolidated sales.

During the quarter, we took several steps to strengthen our balance sheet and ensure access to the capital we believe is necessary to grow our business. I’m very pleased with our successful equity offering and our amended credit facility.

Turning to our business value drivers which are detailed in our published prepared remarks, there are three items I want to address directly in my comments today. First increasing portion pack consumption. Beyond our early success with Brew Over Ice our beverage development group is hard at work on new beverages for new occasion. We are very excited about the new products we have in the pipeline, including beverages that could provide functional and/or wellness benefits. We believe there is a meaningful opportunity for beverages beyond hot coffee and tea and we’re looking forward to bringing new beverages to Keurig consumers, we have demonstrated a strong willingness and desire to try them.

Second, on scaling to meet demand, it’s no question that our growth in recent years has been extraordinary. As we planned for fiscal 2012 and beyond, it became clear that anticipated growth of the Keurig single-cup brewing system would continue to drive significant increases to current portion pack production capacity.

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