Green Mountain Trying to Improve K-Cup Sales Forecating

Green Mountain Coffee Earnings
Green Mountain Coffee K-Cups in Waterbury, Vermont. Photographer: Herb Swanson/Bloomberg

Green Mountain Coffee Roasters Inc. Chief Executive Officer Lawrence Blanford, whose company lost almost half its market value after reporting second-quarter revenue that trailed analysts’ estimates, said he’s working to better forecast sales.

“We’re going to keep trying,” Blanford, 57, said in an interview yesterday. Still, “I’m not sure we can call it closer” while sales are growing so quickly.

Second-quarter revenue rose 37 percent to $885.1 million, the Waterbury, Vermont-based company said yesterday in a statement. That was the slowest quarterly sales growth in five years and trailed analysts’ $971.7 million average estimate.

The shares plunged 48 percent to $25.87 at the close in New York, the biggest drop since they began trading in September 1993. Green Mountain has lost 42 percent this year.

Some retailers don’t share K-Cup and brewer sales data for competitive reasons, so that makes it harder to forecast, Blanford said. Certain “customers won’t share that information” with Green Mountain, he said, declining to name specific stores.

“We still have a business here that is growing quite nicely,” Blanford said. Green Mountain will “continue to create shareholder value,” he said.

Profit Rises

Second-quarter net income rose 42 percent to $93 million, or 58 cents a share, from $65.4 million, or 44 cents, a year earlier. Excluding certain items, profit was 64 cents a share, matching the average of 12 analysts’ estimates compiled by Bloomberg.

Gross margin, the percentage of sales left after subtracting the cost of goods sold, narrowed to 35.4 percent in the quarter, from 37.5 percent a year ago, due partly to “lower-than-expected” K-cup pack demand. Higher coffee costs and efforts to reduce K-Cup inventories also hurt margin, Green Mountain said.

Third-quarter earnings will be as much as 53 cents a share, Green Mountain said. That compares with analysts’ average estimate for profit of 71 cents yesterday.

For the full year, profit excluding some items will be as much as $2.50 a share, down from an earlier forecast of as much as $2.65. Analysts had projected $2.67 as of yesterday.

“You don’t expect them to miss like this,” Rick Munarriz, a Miami-based analyst at the Motley Fool, said in an interview. “It’s hard to find much of a silver lining in the report.”

Private-Label Competition

Green Mountain is seeing more competition from private-label capsules that fit into Keurig machines and from Starbucks Corp., which in March said it will begin selling its own single-serve brewer later this year. Blanford has introduced the Vue coffee machine, which makes espresso-based drinks, to help combat rivals when the main patents for its K-Cups expire in September.

In February, Green Mountain introduced the Vue machine, which makes lattes and cappuccinos and costs about $250. Starbucks, which already sells K-Cups, will begin selling single-serve cups for the Vue in specialty, department and mass retail stores and online in the U.S. “by fall 2012,” Seattle-based Starbucks and Green Mountain said in a statement in March.

Green Mountain is also working on an espresso machine with Italian coffee company Luigi Lavazza SpA, which owned about 5 percent of Green Mountain as of Feb. 24, according to data compiled by Bloomberg. The machine should start shipping in time for the holiday season this year, Blanford said.

Green Mountain, which has been criticized by hedge fund manager David Einhorn for its accounting practices and transparency, said inventories more than doubled to $602.1 million in the quarter, from $300.8 million a year earlier.

In March, Einhorn said that the Starbucks Verismo brewer “is part of the competitive onslaught hitting Green Mountain.”

Green Mountain also sells single-serve pods under the Gloria Jean’s, Swiss Miss and Caribou Coffee Co. brands.

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