Green Mountain Coffee Roasters, Inc.

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Green Mountain Coffee Roasters, Inc.
April 30, 2013
Hada Jang
Shicheng Tang
Yijin (Iris) Zhang
Agenda
 Introduction
 Company Overview
 Industry Overview
 Stock Performance
 Financial Analysis
 Valuation
 Recommendation
2
Company Profile
 Headquartered in Waterbury, Vermont
 One of the leading companies in the specialty coffee and
coffee maker businesses.
 Employed about 5,800 people as of Sep 29, 2012
 Top four best-selling coffeemakers by dollar volume in the
United States
Source: GMRC Inc. 2012 Annual Report
Introduction
Company
Industry
Valuation
3
Company History
2006: GMCR acquired
KEURIG, Incorporated, a
manufacturer of single-cup
brewing systems.
1981: Green Mountain Coffee
Roaster was established as a
small café in Vermont
1981
1981
1993
1993
1993: GMCR started
publicly trading on the
NASDAQ national market
2006
2006
2011: GMCR sold the
"Filterfresh" US coffee service
portion of Van Houtte's
business to Aramark
2010
2010
2011
2004
2010: Green Mountain Coffee
acquired Diedrich Coffee for $305.3
million and bought coffee services
company Van Houtte for $907.8M
Source: GMRC Inc. 2012 Annual Report
Introduction
Company
Industry
Valuation
4
Product Segments
 The Company manages its operations through three operating segments,
the Specialty Coffee business unit (“SCBU”), the KEURIG business unit
(“KBU”) and the Canadian business unit (“CBU”).
 SCBU sources, produces and sells coffee, hot cocoa, teas and other
beverages, in a variety of packaging formats, to consumers in the United
States.
 KBU targets its premium patented single cup brewing systems for use both
at-home (“AH”) and away-from-home (“AFH”), in the United States.
 CBU sources, produces and sells coffees and teas and other beverages to
Canadian consumers.
Source: GMRC Inc. 2012 Annual Report
Introduction
Company
Industry
Valuation
5
Sales Breakdown
 Net sales for fiscal 2012 increased 46% to $3,859.2 million, up from
$2,650.9 million reported in fiscal 2011. The primary drivers of the
increase in the Company’s net sales were a 59%, or $1,004.9 million,
increase in single serve pack net sales, and a 45%, or $235.1 million,
increase in KEURIG Single Cup Brewer and accessories sales.
Geographical Breakdown
Canada
16%
United
States
84%
Source: GMRC Inc. 2012 Annual Report
Introduction
Company
Industry
Valuation
6
Historical Financials
Net Sales (in thousands)
$4,500
$4,000
EPS Gowth
2.5
Source: Bloomberg
$3,859.20
2
$3,500
$2,650.90
$3,000
$2,000
$1,000
1.31
1.5
$2,500
$1,500
2.28
Source: Bloomberg
1
$1,356.78
$786.14
0.5
0.45
0.58
$500
$0
0
2009
2010
2011
2012
2009
2010
Debt to Equity
2012
12.77
12.53
2011
2012
ROIC
0.6
14
Source: Bloomberg
Source: Bloomberg
0.48
0.5
2011
12
10
0.4
9.72
9.09
2009
2010
8
0.3
0.3
0.23
0.2
6
4
0.12
0.1
2
0
0
2009
2010
2011
2012
7
Introduction
Company
Industry
Valuation
Competitive Strength – SWOT Analysis
Strengths
•
•
•
•
Weaknesses
Leading market position built on strong
product portfolio
KEURIG unit contributes to strong revenue
growth
Corporate image built on sustainability
initiatives
Customer loyalty
•
•
Reliance on a single manufacturer in China
for single cup brewers
Dependence on certain retailer for a
substantial portion of revenues
Opportunities
•
•
Strategic agreements to bolster revenues
Entry into functional drinks market in the
US
Threats
•
•
Competition in specialty coffee is intense
Increased demand for high-quality Arabica
coffee beans coupled with possible supply
shortages
Source: Marketline
Introduction
Company
Industry
Valuation
8
Porter’s Five Forces
Threat of Substitutes: Medium
• 54% of Americans over age of 18 drink coffee on a daily basis
Competitive Rivalry: High
• Expiration of K-Cup pack patent in September 2012
Threat of New Entrants: Medium
• Lower entrance barrier to existing competitors
• Higher entrance barrier to new entrants
Buyer Power: High
• Increase in consumers’ option  Lower command power in terms of pricing
Supplier Power: High
• Heavy dependency on specialty coffee farms
9
Introduction
Company
Industry
Valuation
Macroeconomic Indicators
US Disposable Personal Income
(Billion)
Consumer Confidence
$13,000
80
Source: Bloomberg
$12,500
70
$12,000
60
$11,500
50
$11,000
40
$10,500
30
$10,000
20
(USD/lb)
Hot Drink Market Growth - Coffee
160
150
140
130
Source: Bloomberg
ICE 3-Mo. Coffee
300
Global
North America
250
Asia
200
Pan-Europe
120
150
110
100
100
Source: Bloomberg
50
90
Source: Bloomberg
80
2008
2009
2010
2011
2012
10
Introduction
Company
Industry
Valuation
Stock Performance
Equity Snapshot
•
•
•
•
•
•
•
Price: $ 56.47 (April 29, 2013)
Beta: 0.31 (0.94 on 5yr avg.)
Trailing P/E: 24.39
Forward P/E: 17.54
PEG Ratio (5 yr. expected):
1.04
P/B Ratio: 3.63
No divined
Source: Finance.yahoo.com
11
Introduction
Company
Industry
Valuation
Stock Performance
GMCR vs. Other Coffee Stocks
50.00%
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
Starbucks Corporation (NasdaqGS:SBUX)
Coffee Holding Co.Inc. (NasdaqCM:JVA)
Dunkin' Brands Group, Inc. (NasdaqGS:DNKN)
30.00%
10.00%
-10.00%
-30.00%
-50.00%
Source: Capital IQ
-70.00%
12
Introduction
Company
Industry
Valuation
Key Financial Ratios
2008
2009
GMCR
2010
9.0%
18.2%
35.3%
9.1%
4.4%
8.2%
15.0%
31.2%
9.7%
6.9%
9.0%
12.4%
31.4%
11.6%
5.9%
10.4%
15.3%
34.1%
14.3%
7.5%
10.4%
17.3%
32.9%
14.7%
9.4%
14.5%
21.2%
56.3%
13.5%
10.4%
4.9%
7.1%
78.8%
38.4%
16.5%
7.1%
11.4%
6.9%
2.5%
1.4%
Activity
Fi xed As s et Turnover
Inventory Turnover
6.0x
5.1x
6.7x
5.0x
6.9x
4.7x
6.3x
3.7x
5.1x
3.6x
5.3x
5.3x
3.6x
NA
88.6x
12.3x
Liquidity
Current Ra tio
Qui ck Ra tio
Avg. Ca s h Convers i on Cycl e
2.1x
0.8x
65.1
4.2x
3.0x
68.8
2.1x
0.8x
75.0
2.4x
0.7x
96.4
2.5x
0.9x
97.9
1.9x
1.1x
53.0
1.2x
0.8x
NA
3.7x
2.3x
35.5
89.0%
13.8%
51.1%
30.7%
23.8%
10.7%
531.6%
3.9%
For the Fiscal Period Ending
Profitability
Return on As s ets %
Return on Equi ty %
Gros s Ma rgi n %
EBIT Ma rgi n %
Net Income Ma rgi n %
Solvency
Total Debt/Equi ty
2011
2012
SBUX
2012
DNKN
2012
JVA
2012
DuPont Analysis
Net Income Margin %
Total Asset Turnover
Financial Leverage
Return on Equity %
2008
2009
2010
2011
2012
4.4%
1.6x
6.9%
1.3x
5.9%
1.2x
7.5%
1.2x
9.4%
1.1x
2.61
18.2%
1.61
15.0%
1.70
12.4%
1.75
15.3%
1.62
17.3%
Source: Capital IQ
Introduction
Company
13
Industry
Valuation
Valuation – Trading Comparables
Company Comp Set
4/23/2013
Enterprise Value /
Company Name
Peers in Processed & Packaged Goods Industry
Price
NTM Enterprise Value
Forward Total
EPS
Revenue
Forward EBITDA NTM Forward P/E
EBITDA
EBIT
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
10.6x
14.1x
23.8x
1.84x
9.0x
18.85x
Flowers Foods, Inc. (NYSE:FLO)
General Mills, Inc. (NYSE:GIS)
Hillshire Brands Company (NYSE:HSH)
McCormick & Company, Incorporated (NYSE:MKC)
The Hain Celestial Group, Inc. (NasdaqGS:HAIN)
The Hershey Company (NYSE:HSY)
The J. M. Smucker Company (NYSE:SJM)
The WhiteWave Foods Company (NYSE:WWAV)
Treehouse Foods, Inc. (NYSE:THS)
15.6x
11.5x
8.9x
15.1x
18.0x
15.3x
10.5x
14.6x
10.7x
22.5x
13.7x
12.4x
17.7x
21.5x
17.7x
13.1x
20.7x
16.1x
33.0x
18.5x
60.5x
23.4x
26.6x
31.3x
21.9x
23.5x
27.1x
1.41x
2.26x
1.22x
2.50x
1.90x
3.02x
2.13x
1.48x
1.38x
12.0x
11.4x
10.0x
14.3x
13.9x
13.7x
10.1x
13.2x
9.8x
23.95x
17.91x
21.62x
22.05x
23.94x
24.72x
18.51x
24.31x
20.92x
High
Low
Mean
Median
18.0x
8.9x
13.4x
14.6x
22.5x
12.4x
17.3x
17.7x
60.5x
18.5x
29.5x
26.6x
3.0x
1.2x
1.9x
1.9x
14.3x
9.8x
12.0x
12.0x
24.7x
17.9x
22.0x
22.1x
LTM EBITDA
750,543
LTM EBIT
568,896
LTM EPS
2.44
NTM Revenue
/Share
31.0
NTM EBITDA
772,821
NTM EPS
2.72
$67.36
$73.64
$66.01
$67.67
$71.97
$64.82
$59.61
$58.92
$62.55
$62.32
$59.83
$59.98
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
Implied Price_Mean
Implied Price_Median
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
4/23/2013
Shares
Close Price Outstanding
56.55
148,809
Market
Capitalizatio
8,888,799
Equally Weighted Average Price
$64.56
14
Introduction
Company
Industry
Valuation
Valuation – Trading Comparables (Cont’d)
Company Comp Set
4/23/2013
Enterprise Value /
Company Name
Competitive Coffee Stocks
Price
NTM Enterprise Value
Forward Total
EPS
Revenue
Forward EBITDA NTM Forward P/E
EBITDA
EBIT
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
10.6x
14.1x
23.8x
1.84x
9.0x
18.85x
Coffee Holding Co.Inc. (NasdaqCM:JVA)
Dunkin' Brands Group, Inc. (NasdaqGS:DNKN)
Farmer Brothers Co. (NasdaqGM:FARM)
Starbucks Corporation (NasdaqGS:SBUX)
9.4x
17.2x
10.7x
15.3x
10.7x
20.3x
NM
19.6x
24.6x
41.0x
NM
30.5x
0.22x
8.04x
0.48x
2.72x
15.2x
5.3x
13.0x
9.05x
24.53x
27.80x
25.17x
High
Low
Mean
Median
17.2x
9.4x
13.2x
13.0x
20.3x
10.7x
16.9x
19.6x
41.0x
24.6x
32.0x
30.5x
s
0.2x
2.9x
1.6x
15.2x
5.3x
11.2x
13.0x
27.8x
9.1x
21.6x
24.9x
NTM EBITDA
772,821
NTM EPS
2.72
$57.99
$67.51
$58.86
$67.60
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
Implied Price_Mean
Implied Price_Median
Green Mountain Coffee Roasters, Inc. (NasdaqGS:GMCR)
LTM EBITDA
750,543
LTM EBIT
568,896
LTM EPS
2.44
NTM Revenue
/Share
31.0
$66.32
$65.57
$64.48
$74.93
$78.06
$74.32
$88.84
$49.62
4/23/2013
Shares
Close Price Outstanding
56.55
148,809
Market
Capitalization
8,888,799
Equally Weighted Average Price
$67.84
15
Introduction
Company
Industry
Valuation
Valuation – WACC Analysis
WACC Calculation
Capital Structure
Total Market Value of Equity
Total Debt
Total Capitalization
8,415,124
473,675
8,888,799
Debt-to-Total Capitalization
Equity-to-Total Capitalization
5.33%
94.67%
Beta
Risk-Free Rate
Market Risk Premium
Cost of Equity (CAPM)
Cost of Equity
Weighted Cost of Equity
0.31
1.67%
7.00%
3.84%
11.92%
7.88%
Cost of Debt
Tax Rate
After-tax Cost of Debt
5.50%
37%
3.47%
WACC (only CAPM)
WACC
3.82%
7.65%
Realized Annual Return
Year
GMCR
2008
-22.28%
2009
129.56%
2010
-50.43%
2011
97.09%
2012
-53.88%
5-Year Total Return
Annual Compounded Return
75.62%
11.92%
16
Introduction
Company
Industry
Valuation
Valuation – Revenue Projection
($ in thousands)
Net sales
% growth
KBU
% growth
SCBU
% growth
CBU
% growth
Corporate
Inter-company eliminations
% growth
2010
2011
2012 Average
1,356,775 2,650,899 3,859,198
73%
95%
46%
865,861
83%
826,376
74%
120,173
(455,635)
34%
1,354,001
56%
1,406,701
70%
596,814
397%
(706,617)
27%
1,696,553
25%
1,560,132
11%
725,864
22%
(123,351)
3%
2013E
2014E
2015E
2016E
2017E
4,614,469 5,214,998 5,740,006 6,144,868 6,390,663
71%
20%
13%
10%
7%
4%
55%
52%
209%
21%
2,001,353
18%
1,730,298
11%
882,819
22%
0%
2,291,036
14%
1,889,146
9%
1,034,817
17%
0%
2,542,659
11%
2,029,954
7%
1,167,393
13%
0%
2,733,141
7%
2,146,206
6%
1,265,522
8%
0%
2,842,466
4%
2,232,054
4%
1,316,143
4%
0%
FY 2009: acquired the wholesale business and certain assets of Tully’s Coffee Corporation
FY 2010: acquired Timothy’s Coffee of the World Inc. (Nov 13, 2009); Diedrich Coffee, Inc. (May 11, 2010)
FY 2011: acquired LJVH Holdings, Inc. and Subsidiaries (“Van Houtte”) on December 17, 2010
17
Introduction
Company
Industry
Valuation
Valuation – DCF
Discounted Cash Flow
2013E
4,614,469
(3,100,951)
1,513,518
($ in thousands)
Revenues
COGS
Gross Profit
EBIT
Less: Income Taxes @ 37%
EBIAT
Add: Depreciation & Amortization
Less: Capital Expenditures
Less: Increase In NWC
Unlevered Free Cash Flow
Terminal Growth Rate
Terminal Value
Discount Rate
PV of Free Cash Flow
Implied Enterprise Value
Tax rate
Shares Outstanding (thousands)
Fair Value of GMCR
840,789
(299,417)
541,372
80,358
(164,826)
(110,214)
900,093
(324,378)
575,714
71,376
(127,106)
53,459
143,383
276,869
346,690
573,443
133,199
238,935
277,939
427,072
9,502,321
(473,675)
58,289
9,086,935
Current Stock Price
$56.55
936,096
(340,782)
595,314
59,024
(77,167)
(51,599)
763,887
(270,845)
493,041
87,112
(188,536)
(114,749)
37%
148,809
$61.06
2017E
6,390,663
(4,294,564)
2,096,099
675,922
(238,210)
437,712
96,899
(237,117)
(154,111)
WACC
Enterprise Value
Less: Debt
Add: Cash
Implied Equity Value
Fiscal Year Ended on September 29,
2016E
2015E
2014E
6,144,868
5,740,006
5,214,998
(4,129,389)
(3,857,319)
(3,504,511)
2,015,480
1,882,687
1,710,488
$61.06
5.65%
6.65%
7.65%
8.65%
9.65%
525,572
3.00%
11,652,128
7.65%
8,425,176
9,502,321
GMCR Fair Value Sensitivity
Terminal Growth Rate
2.0%
2.5%
3.0%
3.5%
$82.62
$94.98 $112.02 $136.99
$63.42
$70.51
$79.54
$91.44
$51.04
$55.56
$61.06
$67.89
$42.40
$45.50
$49.15
$53.51
$36.03
$38.27
$40.84
$43.83
4.0%
$177.13
$107.84
$76.59
$58.82
$47.35
18
Introduction
Company
Industry
Valuation
Risks & Drivers
Risks
• Expiration of K-Cup pack patent
• Sales concentration
• Lower activity and liquidity
• Higher debt level
Drivers
• Top selling single cup brewer
• Partnerships with strong existing brands
• Expansion
• Discount to the competitors
• DCF Valuation
19
Introduction
Company
Industry
Valuation
Recommendation
Watch List
20
Questions?
Thank you
21
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