Highlights From GMCR's Q4 Conference Call: Revenues Grew 91% Year-over-Year, But Not Enough For Investors

Green Mountain Coffee Roasters (NASDAQ: GMCR) reported Q4 EPS of $0.47, $0.01 worse than the analyst estimate of $0.48. Revenue for the quarter came in at $711.9 million versus the consensus estimate of $760.48 million. Shares still down almost 39% going into the close.

Highlights From GMCR's Q4 Conference Call:

• (Lawrence J. Blanford) First, on our fourth-quarter results, we continued to see robust consumer adoption of the Keurig Single-Cup Brewing System.
  
• Revenue in Q4 was strong, with a 91% revenue growth over the same period in fiscal 2010. We continued to drive operating profit improvement, increasing our non-GAAP operating margin to 17% from 14% in the same quarter last year, and our non-GAAP net income increased $42 million, or 126%, over the fourth quarter of fiscal 2010, resulting in a non-GAAP EPS of $0.47.
  
• Our fourth-quarter revenue was off our estimates. We believe this resulted from a number of factors, including changes in wholesale customer ordering patterns in our grocery and club channels.
  
• We saw strong increases in orders from certain customers in those channels during our fiscal third quarter, followed by declines in their ordering patterns in our fiscal fourth quarter.
  
• However, IRI' point-of-sale data for grocery and customer-provided point-of-sale data for clubs show a consistent level of year-over-year consumer portion pack demand growth over the same time period.
  
• For example, based on IRI data on sales through the grocery channel, each of the four-week periods in our fiscal second half delivered between 135% and 161% year-over-year unit sales growth.
  
• Quickly recapping our fiscal year 2011, we are most pleased to have delivered 95% revenue growth, 148% non-GAAP operating income improvement, and 35% non-GAAP net income growth.
  
• Quickly recapping our fiscal year 2011, we are most pleased to have delivered 95% revenue growth, 148% non-GAAP operating income improvement, and 35% non-GAAP net income growth.
  
• We estimate that total resources allocated to sustainability programs will total approximately $15.2 million for fiscal 2011, or approximately 5% of our pre-tax earnings.
  
• We have continued to expand production, with higher-output K-Cup portion pack lines and new packaging lines designed for the advanced K-Cup portion pack, which is used for our Brew Over Ice beverages, Barista Prima Coffeehouse, and Starbucks (Nasdaq: SBUX). We've also expanded our supply chain to support the growth of Caf Escapes and Green Mountain Naturals Hot Apple Cider.
  
• We estimate there are Keurig brewers in roughly 7 million to 9 million households.
  
• While we have never projected how many households could ultimately adopt Keurig brewing technology, in light of our most recent quarterly NPD unit share of 17.6% and the unit share growth of 56% quarter over same quarter from prior year, we believe we have significant opportunity to continue to increase adoption throughout North America.
  
• While we too are watchful of consumer spending going into the holidays, we remain confident in the company's growth potential and are comfortable reaffirming our estimates for total fiscal-year 2012 non-GAAP earnings per share in a range of $2.55 to $2.65.
  
• As we refined our forecast and capacity needs, we've been able to refine our expected 2012 capital expenditures. For fiscal 2012, we currently expect to invest between $630 million and $700 million in capital to support the company's future growth. We expect to spend approximately 80% of this in new capacity.
  
• Details of our planned 2012 capital expenditures are detailed in our press release. As has been the case for the last several years, we believe this CapEx is necessary to enable us to meet forecasted portion pack demand for 2012, and to be ready for 2013.
  
• This brings us to the topic of consumption trends, a subject that frequently comes up in our discussion with investors. Consumption is an important metric in our demand forecasting, which attempts to project portion packs sold through retail channels versus traditional away-from-home channels.
  
• For example, there were 17,000 quantitative consumer research surveys conducted by independent researchers on our behalf between April and September 2011.
  
• Fact-checking our model with fiscal 2011 actual results confirms our assumptions that consumption trends remained steady, at about two portion packs per day for at-home reservoir brewer models.
  
• Finally, continued innovation is a key contributor to our enabling initiatives. As we've discussed previously, in addition to our work with Lavazza to develop a new espresso-based system, we also have a new Keurig filtered coffee brewing platform in development. Our new Keurig platform remains in consumer tests currently, and we're looking forward to being more specific about plans for a 2012 launch soon.
  
• (Q&A) So, first question, Larry, you talked about K-Cup shipments and the ordering rates at club in grocery. That just seems pretty logical that it was some buy ahead of the price increase. How do you explain the disparity between the NPD data on brewer shipments and the year-over-year growth that you reported in brewer shipments? Why did it trail what the third-party data indicated? (A) Well, on the brewer shipments, I think, as we've said before, Scott, wholesale shipments that we report can be different than the consumer sell-through of brewers and/or portion packs, for that matter, so from quarter-to-quarter, for a host of reasons, demand from customers may vary. And what is really important, and more important than our wholesale shipments quarter-to-quarter, is how that product, be it brewers or portion packs, are moving through to the consumer, and that's really what we need to keep our eye on relative to feeling confident about our business moving forward. So, I don't know that I can explain exactly in the quarter, but that variation happens. John Whoriskey, do you have any comments to help/ (A) Yeah. Hi, Scott. This is John Whoriskey. I would also point out that if you look at our September results in NPD, our unit sales were up 73% in the month, and as we head into the month and into the holiday season, we are positioned probably the best we ever have been in terms of inventory at retail in advance of the holiday season, so I think we're well stocked at this point for what we expect to be a very strong holiday season. So, ultimately, it's really about our POS trends and our NPD data, and shipments come in advance of that. And timing of when a retailer takes product is really a question of how quickly they can move in and out of their own distribution facility.
  
• My first one is just a follow-up on the CapEx question. I understand that, for competitive reasons, you don't want to be too specific, but can you at least let us know how you've changed your capacity planning? It seems like you're being pretty explicit, that now the capacity expansion goes through fiscal '13. So, can you just, first, tell me how that's changed, maybe in the sense that, before, it was one year out; now it's two years out? And then more importantly, will your CapEx come down, in your estimation as you sit here today, in fiscal '13? (A) Yeah, Akshay, this is Larry. I'll start, and maybe Fran may want to kick in here. So, yeah, we're saying that in '12, fiscal '12, we'll spend capital to both support our needs in '12 and to make sure that we're ready for the beginning of fiscal '13. We're not suggesting that we will be spending in '12 the capital to take care of all of the demand in '13. I would expect that we would continue to grow capacity as we move into fiscal '13. We have not yet formalized our projections for '13, so I would hesitate to give you a sense of what we think our capital spending will be for '13. The other thing, of course, also, that will be an important element of the mix is the introduction of our next-generation system, and how we envision that rolling out, and what the mix between both the next generation system and the current system is going to be. So, we're working through a lot of that as we speak. (A) Akshay, this is Fran. I just wanted to comment. In terms of our guidance for CapEx for fiscal '12 of $630 million to $700 million, this is a refinement of the estimates we provided last quarter. As you know, we actually closed on one of the sites, Virginia, so we have now more up-to-date information, so we've been refining our estimate. So, we really haven't changed anything relative to our capacity or projections.

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