Green Mountain Coffee Roasters Earnings Call Nuggets: Revenue Growth and Outlook

Green Mountain Coffee Roasters, Inc. (NASDAQ:GMCR) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Revenue Growth

Bryan Spillane – Bank of America Merrill Lynch: Larry, congratulations and all the best as you move on. I’ve got just one point of clarification and one question. Then want to make sure I understand, the revenue growth for 2013 off of the base that includes the 53rd week, is that correct?

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Frances Rathke – CFO: Bryan this is, yes, given $90 million on close to four here, it’s not significant and we’re comfortable with the 15% to 20% including the 53rd week.

Bryan Spillane – Bank of America Merrill Lynch: Including the 53 week in the base, okay.

Frances Rathke – CFO: Just a clarification on the earnings side, we just want to make sure it was apples-to-apples.

Bryan Spillane – Bank of America Merrill Lynch: Then also, is the amortization – you’re expecting more amortization add back next year than you had in this current year?

Frances Rathke – CFO: No. I think in terms of the amortization expense, it will be about the same as – it should be about the same as this year.

Bryan Spillane – Bank of America Merrill Lynch: Then, Larry, just, the question is, as you look forward and your confidence in the 5% to 15% range for competitor – unlicensed competitors within single cup, how much of the barrier to entry is just simply the cost it would cost some competitor to actually install the capacity needed in order to have – there’s a significant or bit of a I guess a moat around the business, just because it’s going to be a significant capital outlay in order to have that much capacity to have much greater share of the single cup market, and just how much of it is your view that at some point, transitioning to the view sort of give you more exclusivity within single cup? I’m just trying to understand how much of your outlook is based on just simply how much capital requirement competitors would have to put in versus your view on transitioning to the new platform?

Larry Blanford – President and CEO: We actually, I believe, have several moats around the business, one certainly being your thoughts on our manufacturing scale and economies of scale and size. And from that perspective, we continue to invest in our equipment, continue to work on increasing efficiencies and throughputs and quality, so just the scale required to serve this business, is continuing to grow significantly, certainly is a factor in our competitive position. I would also say it’s not necessarily as easy to produce these portion packs as it may appear, in other words to produce them in a way that work in a quality way with our brewers and to produce them in a high quantity and a high throughput. Beyond that of course just quickly, I would reference other modes, the 32 brands we now have in the system really differentiates us from any other system that’s out there and I think is certainly a significant competitive advantage. Then of course, as I mentioned, I think in my comments we’re continuing to innovate this Company. The DNA of this Company is innovation. We continue to innovate – if I look at our R&D pipelines they are fulsome and we’re going to continue to bring new products on both the beverage side and on the brewer platform side to market. We’re going to continue to innovate and as we mentioned, the partners that we have in the system that are participating are in a position to leverage that ongoing innovation. So, I think we have a number of modes that help us and give us confidence in our business going forward.


Akshay Jagdale – KeyBanc Capital Markets: First of all just congratulations on not only the quarter, but sort of your legacy here and it’s good to sort of end off on a positive note, so, again, congratulations and good luck. Just going to – I just want to focus on the longer term if I may in terms of my questions. So you have talked about 15% to 20% top line growth and I’m just curious to know if you can share with us how much of that growth you think is going to come from the three sort of platforms, the adjacencies, et cetera, that you outlined? So other than sort of base business, new product and new sort of innovation, how much of that would sales growth would it represent and maybe give us a perspective as to how much it has represented in the past? I mean, you have been an innovative Company. A lot of your growth has been organic and a lot of it has come from new products, but going forward how much of the 15% to 20% growth is going to come from like the Snapple innovation, et cetera?

Larry Blanford – President and CEO: Yes. Akshay I appreciate the question. We haven’t really broken out for our investors the kind of the split of our contributions from the various innovations as we go forward. I think I would just say in general terms for the very near future obviously the K-Cup platform continues to drive our sales and earnings growth. I am certainly – today we are obviously reliant on North America. Within the K-Cup platform of course we continue to bring in additional brands and we continue to innovate with new beverages and I think our non-coffee beverages today represent I think approximately 14%. Is that right T.J. roughly of portion packs? We anticipate that that is going to continue to grow as we go forward. As mentioned we do envision that the consumer is going to lead the transition to the Vue system and I envision that that will really start to accelerate as mentioned as we get these lower price point Vue brewers in the market. And I just would say again, now in the longer term, I think we have significant innovation that will allow us to continue to generally drive growth. I am absolutely not concerned about lack of innovation, that’s not our issue, and it’s prioritizing that innovation successfully taking to the market and I am very confident in that regard both in our two new platforms, Vue as well as the new Rivo product.

Akshay Jagdale – KeyBanc Capital Markets: Just one follow-up if I may for Fran, for your fiscal ’13 guidance, obviously you’ve maintained your sales growth guidance of a larger base, but your EPS, it seems to me based on your EPS guidance that you are now assuming lower EBIT margins than you were previously and my guess is that has to do with increased confidence in innovation and investing more or sort of keeping some money back for more investments of future growth. Am I reading that correctly and if so can you get into what these additional investments are?

Frances Rathke – CFO: In terms of our guidance and we provided this on last quarter call in terms of next few year, we are continuing to – comfortable with our 15% to 20% annual top line growth over the next few years and earnings growth more in the mid-teens which does indicate – we anticipate some pressure on the operating margin and I think it was primarily due to some of the, if you will the risk we are factoring into our plans and guidance such as the introduction of having some value pricing in our system. Second is the, the introduction of some of the unlicensed participants and I think use responding to that if you will in terms of making sure we’re competitive out there and I also think third item is continuing to invest in our growth with these new platforms and ensuring we’re providing appropriate marketing support, brand support to really communicate to our future consumers about these platforms. We don’t see it driving Akshay like G&A, I think, that’s something we will continue to see we believe leverage on. It’s really more on the brand spend and then on the gross margin line.

Akshay Jagdale – KeyBanc Capital Markets: I was talking more specifically last quarter versus this quarter, your fiscal ’13 guidance seems to imply more of an investment whether it’s lower gross margin or higher SG&A, I’m not sure, but it does imply a lower EBIT margin than previous fiscal ’13 guidance. So, I’m just trying to understand that, one, if, I’m understanding it correctly, and so what changed?

Frances Rathke – CFO: I think in terms of what you are saying Akshay, you’re saying in terms of the previous guidance of $2.55 to $2.65 versus $2.64 to $2.74 is implying that?

Akshay Jagdale – KeyBanc Capital Markets: Yeah, it’s implying EBIT margins that are lower than your previous guidance. But I many have it wrong. I’ll just – we can follow-up offline. I’ll get back to you.

Frances Rathke – CFO: Yeah, we can – we’ll follow up. I think in general it’s a same theme that we had last quarter in terms of our guidance for ’13 is we think we believe we are going to have some pressure on gross margins. As I said, primarily just due to the mix of the portion packs towards the value pricing.

Larry Blanford – President and CEO: And then just we always also have the quarterly issues, like our first quarter, obviously, as here we are, Akshay, heavily focused on brewers and of course, the lower or no margin on brewers. So, Q1 of course gets impacted by that.

A Closer Look: Green Mountain Coffee Roasters Earnings Cheat Sheet>>