Green Mountain Rises on Iced K-Cup

WATERBURY, Vt. ( TheStreet) -- Green Mountain Coffee Roasters ( GMCR) shares rose Friday after the company introduced a new K-Cup portion pack designed to brew iced beverages.

Green Mountain's K-Cups, designed to be used in any Keurig machine, are increasingly popular with consumers, stealing market share from coffee competitors like McDonald's ( MCD) and Starbucks ( SBUX), leading the latter to formulate its own instant coffee product, Via.

Green Mountain Coffee

In Green Mountain's latest move to continue gaining market share, the company launched Brew Over Ice K-Cup Portion packs, which are designed to brew coffees and teas for over 16-ounce cups filled with ice.

Available flavors include Celestial Seasonings Half and Half - black tea and lemonade, Celestial Seasonings Southern Sweet Tea, Celestial Seasonings Iced Tea variety pack, Celestial Seasonings Sweet Black Tea, Celestial Seasonings Sweet Peach Black Tea, Celestial Seasonings Sweet Paspberry Black Tea and Celestial Seasoning Black Tea Unsweetened as well as Nantucket Blend Iced Coffee and French Vanilla Iced Coffee.

Green Mountain shares jumped 4.7% to $43.30 Friday at midday.

In its recent quarter, Green Mountain posted a stronger-than-expected quarterly report and 2011 outlook .

Green Mountain said strong sales of its Keurig single-cup brewing systems and K-Cup portion packs during the holiday shopping season led it to book a 66.6% jump in revenue to $575 million, from $345.2 million, topping expectations for sales of $545.5 million.

Net earnings came in at $2.2 million, or 2 cents per share, down from $10.1 million, or 7 cents per share, in the year-earlier quarter. Adjusted for one-time losses, however, profits soared 73% to $26.1 million, or 18 cents per share, up from $15.1 million, or 11 cents per share, in the fiscal-first quarter last year.

Green Mountain's bottom line results beat analysts' consensus call for earnings of $24.1 million, or 16 cents per share. Analysts typically exclude one-time items when forecasting estimates.

Green Mountain said the one-time items included pretax charges of $11.2 million in Van Houtte transaction-related expenses including the write-off of $2.6 million of deferred financing fees associated with the former credit facility, and $6 million in legal expenses associated with the Securities and Exchange Commission inquiry that led the firm to report a complete reconciliation of its earnings.

On Dec. 17, Green Mountain completed its $908 million acquisition of Van Houtte, a Canadian coffee and coffee-service firm.

The Vermont company forecast current quarter earnings per share in a range of 38 cents to 42 cents, and 2011 earnings per share in a range of $1.19 to $1.29. That guidance outpaced Wall Street's expectations for second-quarter earnings of 33 cents and 2011 earnings of $1.16.

"With increasing consumer adoption, the Keurig Single-Cup Brewing System, our growing family of brands, and K-Cup portion pack products are changing the way North America prepares and enjoys its coffee and other beverages," said CEO Lawrence J. Blanford.

K-Cup sales put pressure on the popularity of not only Starbucks and McDonald's, but also on Peet's Coffee & Tea ( PEET), as well as the retail sales of Kraft Foods' ( KFT) Maxwell House and J.M. Smucker's ( SJM) Folgers and Dunkin' Donuts coffee brands.

Green Mountain said around 91% of its net sales in the recent quarter were from Keurig brewing system and recurring K-Cup portion pack sales, including accessories related to the royalties from third party licensed roasters. The product line's sales totaled $332.9 million in the first fiscal quarter, up 89% from $156.7 million in the year-earlier period.

In October the company announced price increased on all K-Cup portion packs, which are expected to be fully implemented by the end of this calendar month, and already contributed around 4% in increased sales last quarter.

Last month Starbucks posted better-than-expected quarterly profits and revenue but offered a disappointing outlook.

Starbucks reiterated its plans to open 500 net new stores in fiscal 2011, 400 of which will be outside the U.S. and the majority of which are expected to be licensed stores. The company targeted mid- to high-single digit revenue growth driven by low- to mid-single digit comps growth.

It also reaffirmed certain of its 2011 guidance "despite dramatically higher coffee costs," but revised its earnings-per-share outlook. Starbucks forecast 2011 EPS in a range of $1.44 to $1.47, lower than the $1.49 per share analysts had expected, though the company's guidance would represent growth of 15% to 20% over 2010 results.

Starbucks offered guidance for the remaining three quarters of its 2011 fiscal year, saying it expects to book EPS between 32 and 33 cents per share in the current and third quarter, and between 35 and 36 cents in the fourth quarter.

Guidance for all three quarters came in below analysts' consensus call for current quarter EPS of 35 cents, third quarter EPS of 36 cents and fourth quarter EPS of 38 cents.

The Seattle company cited higher coffee costs, which it said will negatively affect its 2011 EPS by around 20 cents, for the revised earnings guidance.

-- Written by Miriam Marcus Reimer in New York.

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