Green Mountain Coffee Roasters Inc. (GMCR) is a specialty coffee and coffee maker. It sells Keurig Single Cup Brewers and Arabica bean coffees, including Fair Trade Certified, certified organic, flavored, limited edition and blends offered in K-Cup and Vue packs (single serve packs) for use with its Keurig Single Cup Brewers.
The company's brewing technology, Keurig Single Cup Brewing System combined with an array of beverage brands, offers a variety of options to consumers, from the kitchen countertop, to small offices and dorm rooms, to hotels. It also offers traditional whole bean and ground coffee in other package types including bags, fractional packages and cans. In addition, it produces and sells other specialty beverages in single serve packs including hot and iced teas, iced coffees, hot and iced fruit brews, hot cocoa and other dairy-based beverages. It sources, produces, and sells more than 30 brands and 250 varieties of coffee, cocoa, teas and other specialty beverages.
Over the last 10 years, Green Mountain averaged an 11% operating margin and a 16% return on equity — strong numbers that the company is working hard to sustain. After disclosing its fourth-quarter results, the company announced a $1 billion share repurchase plan and a $0.25 per share quarterly dividend. It returned cash to shareholders via share repurchases. Since August 2012, the company has spent around $362 million to buy back 10.1 million shares at an average price of $35.82. Moreover, insiders bought more than $1.5 million in stock on the open market at the end of November.
The company announced that the year 2014 will witness revenue growth and earnings of $3.75 to $3.85 per share. The year 2013 has been very strong for Green Mountain Coffee Roasters, with shares of the company up more than 80% since the start of the year. During fiscal year 2013, the total number of Keurig brewers sold reached 10.6 million.
GMCR saw 16% annual revenue growth in fiscal year 2013 from a year ago. Green Mountain Coffee Roasters listed a profit of 83 cents per share for its fourth quarter, nearly 10 cents more than analysts had forecast for the period. In fiscal year 2013, the company generated more than $600 million in free cash flow; this was much higher than last year's free cash flow of $76.7 million. The decent cash flow this year resulted from net profit growth, lower inventory levels and lower capital investment.
If Green Mountain can expand into new channels like it did with Campbell Soup, increase household penetration, and replicate its domestic success internationally, the company may be able to form a durable competitive advantage allowing it to sustain its outsized profits and send the stock soaring in the years ahead. Campbell Soup is the No. 1 soup brand in the U.S. It holds 60% share of the wet-soup market.
In fiscal 2014, the company plans to expand to the UK, Australia, South Korea and Sweden. Green Mountain's diverse selection — it offers more than 200 licensed varieties — may give it an edge over the competition when it expands internationally.
On a Concluding Note
Green Mountain has put the previous patent cliff and accounting concerns behind it. This is a stable company with plenty of room for growth. Green Mountain's leading single-serve brewer, the Keurig Hot system, is in 13% of U.S. households. The company runs national and regional advertising campaigns targeted to specific consumer segments and takes care in how its brewers are displayed in stores.
Green Mountain will continue to generate outsized profits due to the popularity of its Keurig brewer and its attendant k-cups. However, investors should wait for confirmation of a durable competitive advantage — one that keeps rivals from stealing market share, before taking the plunge on Green Mountain shares.