Green Mountain Coffee Roasters Reports Full Fiscal Year and Fourth Quarter Fiscal 2013 Results

Green Mountain Coffee Roasters, Inc., (GMCR) (NASDAQ:GMCR - News), a leader in specialty coffee and coffee makers with its innovative Keurig^® brewing technology, today announced its results for the 13 weeks and 52 weeks ended September 28, 2013.

Performance Highlights

“We had a strong end to an excellent year, driven by continued consumer passion for the Keurig brewing system,” said Brian P. Kelley, GMCR’s President and CEO. “Our 16% annual revenue growth and 22% revenue growth for the fourth quarter were driven by robust brewer sales and continued portion pack sales momentum.

We also continued to deliver solid operating results, growing non-GAAP earnings per share by 56% in the fourth quarter and 45% for the fiscal year. Importantly, for the year, free cash flow generation of $603 million was nearly eight times last year’s $77 million.”^*

^*Please note that the Company's fourth quarter and fiscal year 2012 included an additional week (53rd week) which added approximately $90.0 million in net sales; approximately $11.0 million (net of income taxes of $5.8 million) in net income; and, approximately $0.07 in diluted earnings per share in the fourth quarter and fiscal year 2012. The Company has provided both 52 and 53 week comparisons for its fiscal fourth quarter and fiscal year 2013 results but believes the 52-week data reflects a more meaningful comparison for the periods. Comparisons other than free cash flow exclude management’s estimates of the impact of the extra week of fiscal year 2012.

⁽¹⁾Management’s estimates of fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 52-week period, as adjusted.

Note: Complete GAAP to Non-GAAP reconciliation tables provided with this release.

⁽¹⁾Management’s estimates of fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 13-week period, as adjusted.

Note: Complete GAAP to Non-GAAP reconciliation tables provided with this release.

Fiscal Year 2013 Financial Review

Net Revenue by Product

⁽¹⁾Management's estimates of fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 52-week period, as adjusted.

• Approximately 92% of consolidated fiscal year 2013 net sales were sales of Keurig^® Single Cup brewers, portion packs, and Keurig^®-related accessories, with the remainder of net sales consisting primarily of bagged coffee, fractional packs and our Canadian office coffee services business.

Portion Packs

• The 21% increase in portion pack revenue over the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012) was driven by a 26 percentage point increase in unit volume offset by a 1 percentage point decrease due to net price realization and a 4 percentage point decrease due to portion pack product mix.

Brewers and Accessories

• 10.6 million Keurig^® system brewers were sold during fiscal year 2013.

⁽¹⁾Management’s estimates of fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 52-week period, as adjusted.

Other Products and Royalties

• Revenue of other products and royalties declined 10% over the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012) primarily due to the continuing demand shift from traditional coffee package formats to portion packs.

• In fiscal year 2013, gross margin improved 430 basis points to 37.2% from 32.9% in the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012). The following table quantifies the changes in gross margin period to period:

• GAAP operating income improved to 17.6% of net sales in fiscal year 2013 compared to 14.7% in the prior year period.
• Non-GAAP operating income improved to 18.7% of net sales in fiscal year 2013 compared to 16.0% in the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012).
• The Company’s effective income tax rate was 34.7% for fiscal year 2013 as compared to 36.9% for the prior year.
• Diluted weighted average shares outstanding for fiscal year 2013 decreased 3.9% to 152.8 million from 159.1 million in the prior year period in part as a result of the Company’s share repurchases under its previously announced share repurchase program.

Balance Sheet & Cash Flow Highlights

“Our strong fiscal year 2013 free cash flow of $603 million, which was 125% of GAAP net income, resulted from a healthy balance of net profit growth, lower inventory levels on the working capital side and lower capital investment,” said Frances G. Rathke, GMCR’s Chief Financial Officer.

⁽¹⁾ Represents 52 weeks for fiscal 2013 and 53 weeks for fiscal 2012.

⁽²⁾ Free cash flow is calculated by subtracting capital expenditures for fixed assets from net cash provided by operating activities as reported in the unaudited statement of cash flows.

Share Repurchase and Dividend Declaration Summary

From the inception of its Board authorized share repurchase program in August of 2012 through today the Company has repurchased a total of 10.1 million shares at a total cost of $362 million and an average price of $35.82.

Separately today, the Company announced its Board of Directors has approved a new share repurchase authorization of up to $1 billion. The new share repurchase program will take effect upon completion of the Company’s current program, which has $138 million remaining of its previously authorized $500 million. The Company also announced the Board approved an indicated annual dividend of $1.00 per share, payable $0.25 per quarter and declared a quarterly cash dividend of $0.25 per share.

Fourth Quarter Fiscal Year 2013 Financial Review

Net Revenue By Product

⁽¹⁾Management's estimates of fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 13-week period, as adjusted.

• As shown in the table above, approximately 92% of consolidated fourth quarter fiscal year 2013 net sales were sales of Keurig^® Single Cup Brewers, portion packs, and Keurig^®-related accessories, with the remainder of net sales consisting primarily of bagged coffee, fractional packs and our Canadian office coffee services business.

Portion Packs

• The 23% increase in portion pack revenue over the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012) was driven by a 29 percentage point increase in unit volume offset by a 2 percentage point decrease due to net price realization and a 4 percentage point decrease due to portion pack product mix.

Brewers and Accessories

• For the quarter, 2.6 million Keurig^® system brewers were sold

⁽¹⁾Management’s estimates of the fiscal year 2012’s 53rd week's financial results are not included in the calculation of the 13-week period, as adjusted.

⁽²⁾ Does not sum due to rounding

Other Products and Royalties

• Revenue of other products and royalties declined 10% in the quarter over the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012) primarily due to the continuing demand shift from traditional coffee package formats to portion packs.

• In the fourth quarter of fiscal year 2013, gross margin improved 240 basis points to 36.0% from 33.6% in the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012). The following table quantifies the changes in gross margin period to period:

• GAAP operating income of 16.9% of net sales in the fourth quarter of fiscal year 2013 increased from 15.2% in the prior year period.
• Non-GAAP operating income of 18.2% of net sales in the fourth quarter of fiscal year 2013 increased from 16.4% in the prior year period (excluding management’s estimated impact of the extra week of fiscal year 2012).
• The Company’s effective income tax rate was 27.8% for the fourth quarter of fiscal year 2013 as compared to 34.6% for the prior year period.
• Diluted weighted average shares outstanding as of the end of the fourth quarter of fiscal year 2013 decreased 3.0% to 153.3 million from 158.1 million in the prior year period in part as a result of the Company’s share repurchases under its previously announced share repurchase program.

Business Outlook and Other Forward-Looking Information

“Over the long term, the Company continues to expect double digit annual revenue growth and annual earnings growth in the mid-teens as we launch a new Keurig hot single-serve system and other anticipated disruptive product innovations,” said Kelley. “For fiscal year 2014, we expect net sales growth in the high single digits with some variability quarter-to-quarter as we anticipate rolling out new products to customers and managing the transition from prior generations of products.”

The Company updated its outlook for its fiscal year 2014 and expects:

• Net sales growth in the high single digits over fiscal year 2013 with stronger revenue growth in the second half of the year as a number of currently unlicensed packs are transitioned to licensed partners.
• An annual effective tax rate of 37.0%
• Non-GAAP earnings per diluted share of $3.75 to $3.85 (excluding the amortization of identifiable intangibles related to the Company’s acquisitions; any acquisition-related transaction expenses; and legal and accounting expenses related to the SEC inquiry and the Company’s pending securities and stockholder derivative class action litigation).
• Free cash flow in the range of $200 million to $300 million
• Capital investment in the range of $400 million to $450 million primarily to fund new system introductions

The Company also provided its outlook for its first quarter of fiscal year 2014:

• Net sales growth of low-to-mid single digits over the first quarter of fiscal year 2013 due to difficult brewer and portion pack sales comparisons; the impact of unlicensed packs; and, the currency headwind in Canada.
• Non-GAAP earnings per diluted share in a range of $0.85 to $0.90, an increase of 12% to 18% over the prior year period (excluding the amortization of identifiable intangibles related to the Company’s acquisitions and, legal and accounting expenses related to the SEC inquiry and the Company’s pending securities and stockholder derivative class action litigation).

Use of Non-GAAP Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), the Company provides non-GAAP operating results that exclude any gain from sale of the Filterfresh U.S.-based coffee services business; legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation; and non-cash acquisition-related items such as amortization of identifiable intangibles, each of which include adjustments to show the tax impact of excluding these items. These amounts are not in accordance with, or an alternative to, GAAP. The Company’s management believes that these measures provide investors with transparency by helping illustrate the underlying financial and business trends relating to the Company’s results of operations and financial condition and comparability between current and prior periods. Management uses the measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. Please see the “GAAP to Non-GAAP Reconciliation” table that accompanies this document for a full reconciliation the Company’s GAAP to non-GAAP results.

Conference Call and Webcast

Green Mountain Coffee Roasters, Inc. will be discussing these financial results with analysts and investors in a conference call and live webcast available via the Internet at 5:00 p.m. ET today, November 20, 2013. The call is accessible via live webcast from the events section of the Investor Relations portion of the Company’s website at http://investor.gmcr.com/events.cfm. The Company archives the latest conference call for a period of time. A replay of the conference call also will be available by telephone at (719) 457-0820, passcode 5918330 from 9:00 p.m. ET on November 20, 2013 through 9:00 p.m. ET on Monday, November 25, 2013.

About Green Mountain Coffee Roasters, Inc.

As a leader in specialty coffee and coffee makers, Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ:GMCR - News), is recognized for its award-winning coffees, innovative Keurig^® Single Cup brewing technology, and socially responsible business practices. GMCR supports local and global communities by investing in sustainably-grown coffee, and donating a portion of its pre-tax profits to social and environmental projects. For more information visit: www.gmcr.com. To purchase Keurig^® and Green Mountain Coffee^® products visit: www.Keurig.com or www.greenmountaincoffee.com.

GMCR routinely posts information that may be of importance to investors in the Investor Relations section of its website, www.GMCR.com, including news releases and its complete financial statements, as filed with the SEC. The Company encourages investors to consult this section of its website regularly for important information and news. Additionally, by subscribing to the Company’s automatic email news release delivery, individuals can receive news directly from GMCR as it is released.

Forward-Looking Statements

Certain information contained in this filing constitutes "forward-looking statements." Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These statements may relate to: the expected impact of raw material costs and our pricing actions on our results of operations and gross margins, expected trends in net sales and earnings performance and other financial measures, the expected productivity and working capital improvements, the success of introducing and producing new product offerings, the impact of foreign exchange fluctuations, the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing, the expected results of operations of businesses acquired by us, our ability to issue debt or additional equity securities, our expectations regarding purchasing shares of our common stock under the existing authorizations, and projection of payment of dividends. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those risks and uncertainties described in our filings with the SEC.

Actual results could differ materially from those projected in the forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

GMCR-C

(1) Represents legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation classified as general and administrative expense.

(2) Represents the amortization of intangibles related to the Company’s acquisitions classified as general and administrative expense.

* Does not sum due to rounding.

(1) Represents legal and accounting expenses related to the SEC inquiry and pending securities and stockholder derivative class action litigation classified as general and administrative expense.

(2) Represents the amortization of intangibles related to the Company’s acquisitions classified as general and administrative expense.

(3) Represents the gain on the sale of Filterfresh, net of income taxes of $9.6 million.