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Specialty coffee retailer Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report) delivered robust third-quarter 2013 adjusted earnings (excluding amortization of identifiable intangibles and SEC-inquiry related expenses) of 82 cents per share beating the year-ago quarter’s earnings of 52 cents by 58%. It also beat the Zacks Consensus Estimate of 78 cents by 5.1% and surpassed the company’s guidance of 71 cents–78 cents. The stellar growth was on the back of solid top-line growth and improved operational efficiencies.

Consolidated Revenues and Margins

Green Mountain’s quarterly net sales rose 11.3% to $967.1 million from $869.2 million in the comparable prior-year quarter, backed by an 18% sales growth of single-serve packs (K-cups and Vue Cups). The U.S. business segment also backed net sales growth during the third quarter with robust sales gain of 18%.

The U.S. domestic segment contributed 85% to total sales during the quarter. Sales, however, missed the Zacks Consensus Estimate of $983 million due to lower brewer sales during the quarter.

Gross profit increased 34.4% to $407.6 million. Gross margin inflated 720 basis points (bps) to 42.1% due to favorable green coffee costs, lower wastage cost of finished goods and raw materials, lower warranty expense and labor and overhead manufacturing costs.

Net sales of Single Serve Packs increased 18.0% year over year to $751.7 million, fueled by a substantial 21 percentage points (pp) surge in volume, partially offset by mix and pricing headwinds.

Net sales of Brewers and Accessories slipped 4.0% from the comparable prior-year quarter to $133.1 million mainly due to product mix.

Approximately 1.50 million brewers were sold during the period (1% lower shipments than the year-ago quarter), out of which, 1.38 million units were sold by Green Mountain and the rest by the company’s licensed brewer partners. Traditional coffee shipment volume declined 11% due to a shift of demand toward single-serve coffee.

Net sales of Other products slipped 11% to $82.3 million due to a demand shift from traditional coffee package formats to single-serve packs.

Guidance

Management believes that there are ample opportunities of expanding its Keurig system in the domestic market. The company has raised its outlook for fiscal 2013 to reflect the strong momentum of its Keurig business unit. Green Mountain expects its adjusted earnings per share in the range of $3.19 to $3.24, up from the prior guidance of $3.05 to $3.15. It represents a solid growth rate of 37% to 39% from the previous year earnings results.

The company expects net sales growth in the range of 13%–14% over fiscal 2012 compared to 11%–14% as announced previously. Free cash flow is estimated to be in the range of $350 million–$425 million compared to the previously expected range of $300 million–$400 million. Green Mountain reiterated its capital expenditure in the range of $275 million to $325 million for fiscal 2013.

Green Mountain also provided its outlook for fourth-quarter 2013. The company expects adjusted earnings per share in the range of 69 cents–74 cents and sales growth in the range of 11% to 15%. The guidance reflects the company’s continuous efforts to increase brand investments and product innovations.

GMCR aims to achieve double-digit growth in annual revenues and annual earnings growth in the mid-teens over the long term.

The Zacks Consensus Estimate for the fourth quarter and fiscal 2013 are pegged at 71 cents and $3.18 per share, respectively.

Green Mountain currently carries a Zacks Rank #2 (Buy). Other consumer staples stocks worth considering are Nash Finch Co. , United Natural Foods Inc. (UNFI - Analyst Report) and Fairway Group Holdings Corp. (FWM - Snapshot Report). While Nash Finch carries a Zacks Rank #1 (Strong Buy), United Natural and Fairway Group carry a Zacks Rank #2 (Buy).

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