PEET Reports In-Line

Peet's Coffee & Tea Inc. (PEET - Analyst Report) reported fourth quarter 2010 non-GAAP net income per diluted share of 48 cents in line with the Zacks Consensus Estimate. EPS increased 71.4% sequentially and 33.3% from prior year quarter.

Full year 2010 diluted earnings per share was also in line with the Zacks Consensus Estimate and increased 28% from last year to $1.33 per share.

Replay of the Quarter & Year

The reported year and quarter comprised 52 weeks and 13 weeks respectively as against 53 weeks and 14 weeks in the year ended January 3, 2010.

Management stated that the year marked impressive operating margin improvement, strong earnings per share, and increased sales in line with company’s target, that was led by 24% growth in consumer packaged grocery business.

On a comparable 13-week and 52-week basis, net revenue for the quarter increased 6.4% year-over-year to $91.6 million and for full year net revenue increased 9.2% from last year to $333.8 million.

However, both the quarter and full year revenues failed to beat the Zacks Consensus Revenue Estimate of $96 million and $338 million, respectively.

Excluding the impact of the extra week in 2009, retail net revenue increased 4% year-over-year to $54.6 million and specialty net revenue increased 11% from prior year quarter to $36.9 million.

Favorable pricing in retail and lower operating cost led to decrease of cost of sales and related occupancy expenses to 45.7% of total revenue from 46.9% of total revenue in last year same quarter.

Operating expenses as percentage of net revenue decreased from 32.6% of last year same quarter to 30.9% and was mainly due to store closure costs incurred in the fiscal 2009 and leverage of retail overhead costs.

Operating income increased 8.5%, in the 13 week ended this year compared with 14 week ended January, 2010, to $10.2 million.

At the end of 2010, PEET had $49 million worth of and cash equivalents plus investments versus $48 million of the same at the end of 2009.

The Next Flavor for 2011

For 2011, the company expects the net revenue to grow 8% to 10% and the diluted earnings per share is expected to be between $1.53 and $1.60.

Zacks Consensus Revenue Estimate for 2011 is projected at $369 million and the EPS estimate for next year is $1.59.

Management is confident of the rich and varied opportunities for continued strong sales and profit growth in the long run, both on the company’s existing business and as Peet expands to newer boundaries, consumers and new product portfolios.

Conclusion

Estimates for the quarter had been rising in the run-up to the earnings release and it increased by a penny to 48 cents over the past month, with 1 analyst raising estimates in the last 30 days. The full-year estimate for next year has been stable with no revision by the analysts and is currently estimated at $1.59 per share.

The company faces fierce competition especially in the specialty coffee category. Major peers for the company include Coca-Cola Enterprises Inc. (CCE - Analyst Report) and Coca-Cola Bottling Co. Consolidated (COKE - Snapshot Report).

We currently have a Zacks #3 Rank for PEET, which translates into a Hold rating on short-term basis. On a longer term, we have a Neutral recommendation.

Read the full analyst report on PEET

Read the full analyst report on CCE

Read the full analyst report on COKE