Green Mountain offers tepid view but plans buybacks

Wed Aug 1, 2012 8:00pm EDT

(Reuters) - Green Mountain Coffee Roasters Inc (GMCR.O) beat quarterly profit forecasts but gave a disappointing outlook for the current quarter and upcoming year, as growth of its Keurig coffee cups business slows.

The company, whose stock has been hammered by questions about its business model and accounting practices, also said its board of directors authorized the repurchase of up to $500 million of its shares over the next two years.

Norman Wesley, former chief executive of Fortune Brands, has joined Green Mountain's board, it added, in a move designed to improve corporate governance.

On a conference call with analysts, the company provided more details than usual about its business, leading one analyst to say it was "the best call in years."

Green Mountain shares, which had fallen some 11 percent immediately after its earnings report on Wednesday, reversed course during the conference call. They later traded up 12.5 percent at $20.12.

Daniel Yu, an investor with a short position in Green Mountain, attributed the spike to other short-sellers covering their positions, or some investors finding encouragement from the planned buyback and a perception of increased transparency.

The last time Green Mountain reported earnings, in May, Chief Executive Lawrence Blanford said the company had trouble accurately forecasting demand for its coffee pods. Green Mountain shares lost more than half their value the following day, as Wall Street lost faith with management.

On Wednesday, Blanford said the company had had some "growing pains," and was taking steps to change its forecasting methodology to better predict demand.

As Green Mountain grows, "our sales growth trajectory will understandably moderate from hyper-growth to a level more in line with other successful growth businesses," Blanford said in a statement.

Green Mountain said net income was $73.3 million, or 46 cents per share, in its fiscal third quarter, ended June 23, up from $56.3 million, or 37 cents per share, a year earlier.

Excluding items, earnings were 52 cents per share. On that basis, analysts on average were expecting 50 cents per share, according to Thomson Reuters I/B/E/S.

Net sales rose to $869.2 million, missing analysts' average estimate of $873.3 million.

For fiscal 2012, the company said it now expects earnings of $2.21 to $2.26 per share, down from its prior estimate of $2.40 to $2.50 per share. It expects net sales of $3.79 billion to $3.84 billion, or growth of 43 percent to 45 percent.

It forecast fiscal 2013 earnings of $2.55 to $2.65 per share. Analysts on average were expecting $2.97.

Over the longer term, Green Mountain said it should deliver annual sales growth of 15 percent to 20 percent and earnings growth at a mid-teens percentage rate over the longer term.

(Additional reporting by Melvin Backman in New York; Editing by Steve Orlofsky and Richard Chang)

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