Green Mountain stocks up inventory on demand bet
SAN FRANCISCO (MarketWatch) --
These plans, announced Wednesday, could be a brilliant strategy ahead of the holidays or they could backfire, depending on consumers' appetite for Green Mountain's (GMCR) single-cup Keurig coffee brewers and K-Cup coffee packs.
For the quarter ended June 23, inventory rose 60% to $667 million from the same 2011 period. Finished goods increased 41% -- almost all of which are Keurig brewers, as Green Mountain said it wanted to make sure it had enough product on retailers' shelves by early October.
"Demand for our products has been strong and growing," Chief Executive Larry Blanford said in a conference call to discuss the company's latest results.
In after-hours trades, Green Mountain shares jumped 13% to $20.20. The stock had dropped by double digits immediately after its earnings report was issued. The volatile stock is down 60% since Jan. 1.
For the company's fiscal third quarter, profit rose 30% to $73.3 million, while sales climbed 21% to $869.2 million.
Also on Wednesday, Green Mountain cut its fiscal September 2012 financial targets for the second time since May 2 as the company struggles to forecast future demand. This is reducing capital-expenditure plans.
The Waterbury, Vt.-based firm also issued a fiscal 2013 profit outlook that fell short of consensus estimate from analysts, FactSet data show.
John Del Vecchio, co-portfolio manager of the AdvisorShares Active Bear ETF, which bets stocks will decline in price, called Green Mountain's report a "train wreck."
"Inventories will continue to weigh this company down," Del Vecchio wrote in an email. He questions where Green Mountain is going to get the money to buy back $500 million of its common stock.
Green Mountain expects to generate "meaningful free cash flow in 2013 and 2014." That would be a big change; Green Mountain's business hasn't produced any free cash flow since 2007 and won't this year.
For 2013, Green Mountain is forecasting free cash flow of $100 million to $150 million. (Free cash flow, a key barometer of corporate health, is money left over after all expenses are paid.)
Looking ahead, the company expects to better track supply and demand. Green Mountain said it's instituted a new system to track trade-inventory balances, point-of-sale transactions and shipments to customers.
In addition, Green Mountain is betting the single-serve coffee market will continue to grow. The company estimates the installed base of Keurigs in U.S. households will be 17 million by the end of 2013, up from 11.5 million.
Keurig brewers are the No. 2 selling coffee maker in America based on unit sales, according to NPD Group. As of June, market share was 24.7%, up from 16.6% last September.