Earnings Preview: Peet's

Peet's Coffee & Tea Inc. ( ) , one of the world’s leading specialty coffee roaster and marketer of fresh roasted whole bean coffee, is scheduled to report its fourth-quarter and fiscal year 2011 financial results on February 15, 2012.

The current Zacks Consensus Estimate for the fourth quarter is pegged at 43 cents a share, while it is $1.50 per share for the fiscal year 2011. The Zacks Consensus Estimate projects revenues for the quarter to be $103 million, while $373 million for the fiscal year 2011.

Third Quarter 2011 Recaps

Peet’s, which faces stiff competition from Green Mountain Coffee Roasters Inc. ( GMCR - Analyst Report ) and Starbucks Corporation ( SBUX - Analyst Report ) , posted robust results for the third quarter of 2011 as earnings of 28 cents per share surpassed the Zacks Consensus Estimate by a penny, while they were in line with the prior-year period earnings.

The company also affirmed its 2011 earnings to be at the higher end of the previous guidance range of $1.43 to $1.50. In addition, Peet’s expected its 2011 reported earnings to be at the higher end of the $1.27 to $1.34 range, including litigation-related expenses of 16 cents per share.

Further, Peet’s anticipates that its 2012 earnings would be in the range of $1.70 to $1.80. The current Zacks Consensus Estimate for fiscal 2012 is $1.79.

Earnings were primarily impacted by strong performance of the grocery business, reporting a 38% year-over-year growth, as well as good sales improvement in all segments.

Net sales climbed 14.0% to $91.2 million in the quarter from $80.2 million in prior-year quarter, demonstrating strong fundamentals and business growth.The company thus affirmed its total net revenue growth guidance to be in the range of 10% to 12% for fiscal 2011. It also expects net revenue to grow around 10% for 2012.

Agreement with Analysts

The analysts expect Peet’s to either follow the trend of beating its earnings estimates or remain in line with the estimates, as it has been doing for the last four quarters. Though the analysts have not revised their estimates in the last one month for the current quarter and fiscal year 2011, there is a slight upside trend in the fiscal year 2012, which justifies a neutral sentiment on the stock.

Out of the 8 analysts providing estimates for both the current and the next year, none changed their estimates on the stock over the past one month. The trend indicates no clear directional movement for the upcoming quarters and signifies that the analysts are circumspect about the long-term trend earnings of the company.

Magnitude of Estimate Revisions

Over the past 30 days, the estimate for Peet’s remained unchanged at 43 cents for the current quarter and at $1.50 per share for the fiscal year 2011. The estimates, however, decreased for the next quarter by a penny to 38 cents and increased for the fiscal year 2012 by a penny to $1.79 per share.

Earnings Surprise

With respect to earnings surprises, Peet’s has topped the Zacks Consensus Estimate in three of the last four quarters, while Peet’s estimates remained in line with the Zacks Consensus Estimate in one quarter. Over the last four quarters, the earnings surprise ranged from a positive 0.00% to a positive of 20.59%, with the average earnings surprise being 14.35%, suggesting that Peet’s has outperformed the Zacks Consensus Estimate.

Recommendation

Peet’s Coffee & Tea is a growing company. The company’s high quality standard and its variety are maintained by its vertically integrated business model. Further, management expects momentum and plenty of new growth opportunities for the company. It expects to deliver strong sales and earnings growth, while continuing to invest in and explore additional growth initiatives.

However, the highly competitive nature of specialty coffee category and the vulnerability of coffee prices to weather and damage by pests concern us.

Currently, Peet’s holds the Zacks #3 Rank, which translates into a short-term Hold rating. Over the long term, we prefer to rate the stock as Neutral.