Green Mountain Coffee Roasters filed its annual report with the Securities and Exchanges Commission Wednesday, after announcing encouraging fiscal year 2012 results on Tuesday, with a 46 percent increase in net sales from September 2011 to 2012.
That good news led to a Wall Street rally on Tuesday. Bloomberg Businessweek reported that GMCR shares rose 23 percent Tuesday, the largest gain in a single day since Aug. 2. This contrasts with a 35 percent share value drop so far this year.
About 90 percent of its sales from September 2011 to September 2012 were derived from sales of its flagship Keurig Single Cup Brewers, single serve coffee packets, and related Keurig accessories. The remaining 10 percent of sales came mostly from bagged coffee sales and coffee services to offices.
The company also expects net sales growth of 15 to 20 percent this year, according to documents filed on Tuesday, and capital spending of $380 to $430 million over the coming year.
“Our fourth quarter fiscal year 2012 revenue and earnings growth speaks to GMCR’s continued strategic progress and we believe points to the significant opportunity still ahead for the Company,” outgoing Green Mountain Coffee CEO Lawrence Blanford said in a statement.
A company spokesperson told VTDigger last week that the company couldn’t comment on when it would find a permanent chair for its board, currently led by interim chair Michael Mardy since May, when former chair and Bob Stiller was ousted.
One important question going forward for the company is what will transpire in the aftermath of its two K-Cup patents, which expired in September. Analysts widely expect that new competition from businesses producing cheaper coffee packets for Keurig machines will hurt the company.
Company spokesperson Suzanne Dulong said in a statement: “We think the total share of all unlicensed K-Cup® packs will represent roughly 5% to 15% of the system over the next three years. Consumer reception to date for the competing portion packs has not changed our view.”
“The company has the benefits of being the first to make K-Cups, manufacturing scale and institutional knowledge about the complexities of manufacturing K-Cup packs,” she said.
In May, the SEC questioned whether the pair of expiring patents would materially impact the business. Green Mountain Coffee officials said they expected its other business strategies, including its new products, would compensate for the important patents.
Forbes reported in September that Starbucks’ new Verismo coffeemaker could provide significant competition. Starbucks CEO Howard Schultz claims his company controls about a quarter of the K-Cup market.
But Tom Torti, president of the Lake Champlain Regional Chamber of Commerce, of which GMCR is a member, said that the positive financial results today dispelled the notion that the company faces a decline. “Given the numbers that were reported today, it seems like they have more than weathered the expiration of that patent,” said Torti. “They’re still going forward as the foremost supplier of single serve cups.”
“Their stock has rebounded quite nicely in the last few months,” continued Torti, who noted that GMCR is one of his chamber’s largest member businesses. “It’s certainly good for Vermont. As an advocate for business, I’m very happy that happened.” He said that the company’s role as a large employer paying good wages and benefits helped make it one of the state’s iconic companies.
UVM economist Art Woolf said, “They’ve been growing rapidly, and fast-growing companies tend to have problems.” He cited issues including the expiring patents, a belief by some analysts that the firm’s stock is overpriced, accusations about questionable accounting practices at the company and shareholder lawsuits.
But he added, “All those things are pretty well known to the public. It’s not earth-shaking that those are issues.”
Earlier this year GMCR also launched two new brewers, the Keurig Vue brewer and working with Lavazza, the Keurig Rivo cappuccino and latte brewer. GMCR sold 8.6 million Keurig Single Cup Brewers during fiscal year 2012, and $9.6 million worth of Vue brewers and Vue packs.
Founded in 1981 as a small cafe in Waitsfield, Green Mountain Coffee went public in 1993, and acquired Keurig brewing systems in 2006. It’s still based in Waterbury, and employees about 5,800 people, with facilities in six states and Canada.
The company’s latest annual report documents its phenomenal growth over the past five years. In September 2008, the company made $492.5 million in net sales and maintained $354.7 million in total assets. By September 2012, the company had grown to $3.86 billion in sales and $3.6 billion in assets.
Other highlights from the annual report include:
• Ongoing SEC inquiry
The company admits it faces business risks related to an ongoing SEC inquiry, handled by the commission’s Division of Enforcement and disclosed to investors in September 2010. The report says: “At this point, we are unable to predict what, if any, consequences the SEC inquiry may have on us. However, the inquiry may continue to result in considerable legal expenses, divert management’s attention from other business concerns and harm our business … We can provide no assurances as to the outcome of the SEC inquiry.”
The company is co-operating fully with the inquiry. The report says that in fiscal 2012 the company spent $1.2 million in legal and accounting expenses on the inquiry and associated litigation, and $7.9 million on similar expenses in fiscal year 2011.
The company is fighting a number of class action lawsuits and suits from stockholders, as a result of disclosures it made in September and November 2010, with “no assurances to the outcome of any litigation.”
These include three suits alleging securities fraud, and three brought by shareholders against company executives, with the latest suit filed in July 2012 in U.S. District Court in Vermont. The former set all allege that the company violated federal securities law, by improperly handling disclosures related to its revenue and forward looking guidance. All three of those suits are ongoing. One of the plaintiffs is the Louisiana Municipal Police Employees’ Retirement System.
The shareholder lawsuits alleged that certain officers and directors worked contrary to the best interests of the company. The claims include breach of fiduciary duty, waste of corporate assets, unjust enrichment, contribution, and indemnification, by some executives.
Additionally, the company filed suits as plaintiff for patent violations related to its Keurig brewers and associated packets, against Sturm Foods in October 2010, and against Rogers Family Company in November 2011. Those suits are pending.
The report shows that the company held debt of $531.5 million as of the end of September, a debt which the company says could adversely affect its business, by limiting its flexibility to make business decisions and diverting its available cash from operational expenses to debt payments. Future disruptions in financial markets, it adds, could affect the company’s ability to obtain fresh debt financing.
The company’s long-term debt has increased from $123.5 million in September 2008, to $466.9 million by September 2012. It peaked at a five-year high at $575.9 million in September 2011. Company spokesperson Suzanne Dulong said: “Our debt level has come down significantly and we are comfortable with our current debt.”
The company’s report mentions that it began leasing 425,000 square feet in Burlington, Mass., in June 2012, for a term of 28 years. The Massachusetts facility will be used for administration, research, and development by the firm’s Keurig business unit.
Read the full annual report here.