Green Mountain Coffee 3rd-Quarter Net Up 30%; Approves $500 Million Buyback

08/01/2012| 04:44pm US/Eastern

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   By Ben Fox Rubin 
 

Green Mountain Coffee Roasters Inc.'s (>> Green Mountain Coffee Roasters Inc.) fiscal third-quarter income grew 30%, as the company posted stronger sales of its K-cup coffee and tea portion packs, but margins continued to contract over softer-than-anticipated demand.

The stock sank 11% after hours to $15.90 amid continued margin weakness and weaker-than-expected guidance. As of Wednesday's close, the stock was down 60% so far this year.

The company's board approved a share repurchase program of $500 million, looking to bolster shareholder value with its current funds. The company's market value as of Wednesday's close was about $2.78 billion, according to FactSet.

For its fourth quarter, the company projected downbeat adjusted earnings of 45 cents to 50 cents a share on sales growth of 25% to 30%. Analysts polled by Thomson Reuters most recently predicted earnings of 62 cents a share on revenue growth of 34%.

For the new year, the company also predicted downbeat adjusted earnings of $2.55 to $2.65 a share on sales growth of 15% to 20%. Analysts expected $2.97 a share and 22%, respectively.

The maker of Keurig single-serve coffee brewers and packs has been the dominant player in its industry, but has faced repeated challenges over the past year.

The company's stock has been pummeled since October, when hedge fund Greenlight Capital's Chairman David Einhorn gave an infamous 110-slide presentation highlighting ongoing accounting questions surrounding the company.

Shares continued a sharp selloff after Starbucks Corp. (>> Starbucks Corporation) in March unveiled plans to sell its own single-serve espresso-based coffee maker, and again in May following the company's second-quarter results, when Green Mountain's management team admitted they had a hard time predicting consumer demand for its products.

Adding to the stock selloff, the market is pricing in the long-anticipated entry of lower-priced off-label K-Cup packet knockoffs, which could eat into Green Mountain's results.

For the quarter ended June 23, Green Mountain reported a profit of $73.3 million, or 46 cents a share, up from $56.3 million, or 37 cents a share, a year earlier. Excluding items such as expenses related to a Securities and Exchange inquiry and amortization costs, earnings rose to 52 cents from 49 cents a share. Net sales grew 21% to $869.2 million.

In May, the company forecast adjusted earnings of 48 cents to 53 cents a share on sales growth of 20% to 25%.

Net sales from Keurig brewers and accessories were up 32%, while sales from the K-Cup portion packs for the coffee maker increased 31%. Green Mountain also recently launched a higher-end brewer called the Vue, with associated Vue packs. But because Vue has a higher price of $250, the company has said the product won't likely impact sales this year.

Gross margin narrowed to 34.9% from 36.8% amid weaker-than-expected K-cup demand and lower-than-expected production levels, the company said.

The company also said it added to its board Norman H. Wesley, former chief executive and chairman of Fortune Brands Inc.

Write to Ben Fox Rubin at ben.rubin@dowjones.com

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