From The Call:
Green Mountain Coffee executives responded to recent allegations from investor David Einhorn, who raised concerns that the company committed fraud during inventory, shipping, and supplier practices.
“Though disappointing, we take the recent allegations of misconduct seriously. Our audit committee has reviewed the allegations … there is no misconduct, there is no wrong doing,” CEO Lawrence Blanford said in a prepared statement.
Analysts seemed concerned about the large capital expenditures planned for 2012, which could total $700 million. Multiple research analysts asked specifically about the company’s expectations, but the company declined to report specific capacity roll outs.
Stifel Nicolaus analyst Mark Astrachan questioned executives on inventory growth of 156%, outpacing sales of K-Cup portion packs and brewers. Green Mountain previously said that factories had been at capacity and having difficulty meeting demand.
Green Mountain Coffee Roasters announced fourth quarter earnings below analyst expectations with EPS of $0.47, off by a penny. In after hours trading, shares are down 27%.
Net sales for the period were far below expectations, at $711 million. Analysts polled by Bloomberg were looking for revenue of $760 million.
“Our fiscal fourth quarter revenue growth of 91% was strong,” Blanford said. “This was off of our estimates as a result of a number of factors including changes in wholesale customer ordering patterns in our grocery and club channels despite steady consumer point-of-sale demand in those channels.”
The company has also released guidance for 2012, with estimates for earnings of $2.55 to $2.65, up 60 to 65% from fiscal 2011.
Of interest are increases in accounts receivable and inventories. Inventories jumped to $672.2 million from just $262.5 million a year-ago. Meanwhile, accounts receivable are up 80% to $310.3 million.
The Keurig manufacturer attributes the jump in inventory to a greater number of brewers and portion packs on hand. Last quarter, Green Mountain faced spoilage issues as coffee went bad before it could ship goods to clients.
Provisions for doubtful accounts, or receivables it never expects to collect, surged more than 400%, to nearly $2.6 million.
Green Mountain expects 2012 capital expenditures to total between $630 million and $700 million, likely adding to its already burgeoning debt-load. At the end of its fiscal year, debt totaled $582.6 million, a 64% increase. 80 per cent of capex will be put towards production functions to increase supply capabilities.
The company has been quiet since a report by David Einhorn, CEO of Greenlight Capital, leaked, raising questions of fraud at the coffee company.
Einhorn conducted research of Green Mountain shipping, inventory and supplier practices, and found suspect behaviour, some reminiscent of fraud committed by SunBeam. SunBeam ultimately entered Chapter 11 bankruptcy in a sudden about face.
In particular, Green Mountain’s acquisition of Van Houtte raised accounting concerns when operating expense unexpectedly fell, even as indicators pointed to an increase. At the same time, a line item for Good Will jumped. On a conference call with investors following the acquisition, the CFO refused to delve into the financials supporting the previous operation and said that the acquired company simply spent less than projected. In the next quarter, operating expenses increased to levels Einhorn, and others, had said they should have been all along.
Green Mountain will host its conference call at 5 p.m. with investors.
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