GMCR showing signs of growth
By David Taube
VERMONT PRESS BUREAU | November 29,2012
WATERBURY — Shares for Green Mountain Coffee Roasters Inc. soared past $36 on Wednesday, coming back from below $18 in July. One investment research analyst says the company is poised to grow.
The industry giant had shares pass $100 each during several months last year, but analyst Scott Van Winkle of Canaccord Genuity said GMCR is ready to handle previous demand. The company projects 15 percent to 20 percent growth in sales during fiscal year 2013.
“This is going to be close to a 20 percent grower,” Van Winkle said. “Demand is very much there.”
Based on the sales growth, half of that percentage could result in new jobs, Van Winkle said. The company currently employs about 5,800 full-time, part-time and seasonal workers. Van Winkle said a 15 percent sales growth could mean 7.5 percent more jobs from the total currently employed.
The company also seems poised to grow globally. Last year, it developed a manufacturing and production plant in Norfolk, Va., that’s some 330,000 square feet, or more than seven and a half acres.
Van Winkle said the company appeared to be looking for a place to ship products, and he said it likely could develop markets in South America and the United Kingdom.
Shares previously tanked in part in response to hedge fund manager David Einhorn, who released a report in October 2011 about financial issues with the company. He also noted problems with a shipping and inventory management company being used, and he cited a Securities and Exchange Commission inquiry that began in 2010 regarding Green Mountain Coffee Roasters.
Van Winkle said the company had “a 10-foot wall of demand, but only a 5-foot barrier wall.” Now it has sandbagged its defenses by readying its growth rate, he said.
The company does business only in North America, but it announced in October that the head of its Canadian unit, Gérard Geoffrion, would take on a new role for a new international unit. According to a company spokeswoman, that unit is being developed in Canada.
The company reported this week that its 53-week period ending in September had $3.86 billion in total net sales, a 46 percent increase from a 52-week reporting period previously. The overwhelming majority of those sales, $2.7 billion, were in portion packets.
“Our fourth quarter fiscal 2012 results speak to GMCR’s continued growth and we believe point to the significant opportunity still ahead for the company,” CEO and President Larry Blanford said Tuesday during a fourth quarter conference call with investors.
Blanford downplayed concerns about competition. Since two of its key patents expired in September, the company has seen no market signals to suggest it should change its outlook for single-serve portion packs, Blanford said.
The company’s annual report warns the company could face up to a 15 percent market penetration in at least one kind of portion packet alternatives in the next two or three years.
K-Cup coffee brewing machines run as low as $79, Blanford said, while the company has decreased pricing of new Vue models to entice consumers. One model, the V700, dropped from $249 to $229 going into the holiday season, and the V600 has had an initial suggested retail price of $209 but has cost $189.99 at BJ’s Wholesale Club and QVC.
Another model, the V500, should be introduced by spring for the graduation gift season, and it will cost between $149 and $159, Blanford said.
By the end of the 2013 fiscal year, the company expects its Keurig brewer base in the United States to be about 17 million, approaching 25 million brewers by the end of fiscal year 2014.
About 96 percent of coffee machines were sold at cost or at a loss during the company’s 2012 fiscal year, enticing consumers into the marketplace.
Van Winkle, the analyst, said the company could begin to increase prices when the market penetration is fully realized. It’s unclear what that number is at this point, but once it’s reached, the company could increase the cost of brewers for customers replacing previous models, he said.
Blanford said he believes consumers will move from the K-Cup system to the Vue system.
In October, the company held its first QVC event, which featured the V600, and the available brewers sold out, Blanford said. The show sold 21,900 brewers, he said.
The company announced last week that Blanford would be replaced by Coca-Cola executive Brian Kelley, 51. He is scheduled to start Monday.
Blanford announced in February that he would retire, and he will end his job in early March to help with the transition.
GMCR board member Hinda Miller, who recently retired from the Vermont Senate, said she was impressed by Kelley’s beverage and supply-chain experience and corporate social responsibility, pointing to Coca-Cola’s outreach to Haiti with water management.
“He’s very dynamic. He’s a good communicator,” she said. “And he has all the right experience.”