The Henry Fund
Henry B. Tippie School of Management
Eric Anfinson [eric-anfinson@uiowa.edu]
November 18, 2013
Green Mountain Coffee Roasters, Inc. (GMCR)
Investment Thesis
(+) Projected revenue and earnings growth to hover around 10% and 30%,
respectively. Leading market position in an ever-expanding market provides
many opportunities for brand extension.
(+) Continued innovation – organic growth and advances in machinery,
brands, and beverages keep buyers’ interest peaked and increase
opportunities to diversify operations.
(+) Coffee at low prices – GMCR expects to buy about 20% more coffee in
the upcoming year, and prices remain extremely low. Gross margins will
stay around 40% and the company can offer products at a discounted value
to offset sales from private labels.
(+) Negative perception – a few prominent investors (most notably Einhorn
and Tilson) have taken short positions, hurting the company and producing
a buying opportunity. Valuations of the company show the price to be
relatively cheap when compared to growth outlooks.
(-) Increased competition – GMCR’s K-cup patent expired in September
2012 and more private label products have begun to enter the market.
Private labels have gained about 8% market share, and the number could
climb to 15% within the next year.
(-) Overly aggressive management – Over 2% of GMCR’s workforce will be
released in March when its Toronto plant shuts down. Management has
been replaced since the announcement of the acquisition and property
gained, but more restructuring is on the horizon.
Target Price
Henry Fund DCF
Henry Fund DDM
Relative Multiple
Price Data
Current Price
52wk Range
Consensus 1yr Target
Key Statistics
Market Cap (B)
Shares Outstanding (M)
Institutional Ownership
Five Year Beta
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Sales (TTM)
Price/Book (mrq)
Profitability
Operating Margin
Profit Margin
Return on Assets (TTM)
Return on Equity (TTM)
GMCR
30
25
20
24.3
Year
EPS
2010
$0.60
2011
$1.36
126.7%
2013E
$3.26
39.4%
2014E
$3.75
14.9%
CVS
S&P 500
12 Month Performance
2015E
$4.33
15.4%
2
3
1
95%
$10.64
$150.74
93.70%
0.51
N/A
12.10%
24.29
16.15
2.19
3.66
17.18%
10.53%
13.14%
18.77%
Sector
18.8
16.0
11.6
5
0
P/E
ROE
Recent Developments
1. Sales are not affected by the K-cup patent
loss. Partnership with Starbucks thrives.
2. Partnership with Campbell Soup – plans to
produce soup cups for Keurig machines
45%
-5%
$70.40
$27.88-89.66
$91.83
Industry
19.2
10
2012
$2.34
72.1%
$82-84
$86.89
$14.18
$85.55
25.8
15
Earnings Estimates
BUY
Stock Rating
Consumer Staples – Processed and Packaged Goods (Coffee)
3. Short selling increased activity – many see
declining growth rates as a red flag as private
labels gain market share
N
D
J
F
M
A
M
J
J
A
S
O
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY
Investment Recommendation – BUY
GMCR is a buy because of expected revenue growth
around 10% (5yr) and earnings growth of 15% (5yr).
Coffee is selling at very low prices, and single-serve coffee
sales will continue to be strong despite the increased
competition. Negative perception about GMCR being able
to offset the increased competition has led to a buying
opportunity.
Developing new platforms and machines gives the
company many opportunities for growth. Cold coffee and
products are areas that have been discussed and will be
pursued over the next 2-3 years.1 Another initiative has
been the addition of Keurig stores as its first one opened
on November 8, 2013.2 Providing more information about
the products and continued research for new plans will
help the company expand the segment’s sales by
approximately 10% over the next five years. Other
competitors are going to want to team a partnership due
to the new GMCR platforms and royalties will significantly
help sales.
Canadian Business Unit
COMPANY DESCRIPTION
Green Mountain focuses on coffeemakers and specialty
coffee offerings. The company produces and retails single
serve packs along with more traditional packages of
coffee beans. Coffeemakers are solid for at-home and
away-from-home purposes, selling to a variety of vendors
and distributors. Sales are made in the United States and
Canada, but management has been discussing the option
of expanding to Europe and other regions of the world.
Specialty Coffee
GMCR has found its niche with single serve packs of
specialty coffee. Most products are sold through upscale
specialty and department store retailers, but the past
couple of years have showcased an increase in the use of
mass merchants. K-cups single serving and brewing
accessories account for around 75% of total sales.1
Large distributors of processed and packaged goods are
looking to enter the specialty market through private
labels and benefit from the large growth in the market.
Private labels will have approximately 10% share by the
end of 2014, but GMCR will still be able to accumulate
growth rates over 15% in the sector. Coffee consumption
is increasing and the company is offering new platforms
and products to sustain growth and retain its loyal
customers.
Closing the Toronto plant will hurt sales as the demand
throughout the area has not been as high as previous
management expected. More restructuring throughout
the area may occur as new management focuses on
operating efficiency and higher utilization rates.
However, business in Montreal remains profitable and
the company is focused on expanding its global footprint.
Patents are pending for certain K-cup products in not just
Canada, but other international regions.3
The CBU is expected to have growth in the single digits
over the next five years. The key will be marketing and
expanding on its brands to tailor to the right
demographics. GMCR already has over 200 types of
beverages offered, and there are no signs of the company
slowing down.1 Reaching and adapting to the
international market will not be a problem, and the
company has made an initiative to increase R&D by 3040% to make sure demands are being met.4
GMCR Sales
18%
43%
Keurig Business Unit
Keurig brewer systems are manufactured by a third-party
and sold to consumers for both at-home and away-fromhome purposes. The brewers are not the most profitable
and negatively impact margins as most are sold at cost.
GMCR wants to get its foot in the door with selling the
cheap systems and expand profits with re-use and
accessories.
Page 2
39%
SCBU
KBU
CBU
RECENT DEVELOPMENTS
In September 2011, the stock price dropped nearly 60%
after David Einhorn criticized company management for a
lack of transparency.5 International expansion and
decreasing the reliance on certain distributors has
produced a bounce back, but another sell off has given
way for an investment opportunity.
Unique Partnerships
GMCR has developed healthy relationships with a few of
its competitors, mainly SBUX and DNKN. GMCR develops
packets that can be used in Keurig machines. The
partnerships along with licensing and royalties allowed
the company to maintain strong revenue growth even
though its K-cup patent license expired, and private labels
entered into the mix. While royalties are not a main
revenue source, the company looks to expand the section
to around $500M over the next 5 years.
Chart Title
3,000,000
2,000,000
1,000,000
2010
Single-serve
2011
Brewers
2012
Other/Royalties
SBUX and DNKN are expected to have double digit
growth rates over the next five years, increasing the
chances the partnerships expand. GMCR has been
teaming with other companies to expand its coverage
and help retain customers. Although its main patent
expired, other patents remain on the table until 2023 and
its products are still desired.6 Contracts with competitors
helps reduce the uncertainty of the business and provide
stability in the always changing market.
Product Expansion - Soup
consumers snacking multiple times a day (more than
half).
However, the plan has already experienced some trouble
as the product’s launch has been delayed from early 2014
to summer 2014.8 It seems strange to release 3 varieties
of hot soup in the summer as the launch will not be
positively affected by the warm weather. Also, it is still
too early to tell whether there is enough product
differentiation to make the partnership thrive. The soup
will be made slightly faster, but taste and ease of making
will stay the same. The partnership between Campbell
and GMCR will help give sales a minimal single digit
growth, but will take more than a year to start making a
significant impact.
Short Selling Activity
Notable investors such as Einhorn and Tilson shorting the
stock have helped aid a 30% decline in the price over the
last three months. Both see competition increasing and
market share decreasing with the patent expiration.
Warnings of earnings and sales growth slowing have
ratcheted up negative perception and led many to doubt
GMCR’s ability to continue double digit growth. Social
activity surrounding the stock has increased as price war
speculation and discounting tactics are discussed.
The price decline has presented a buying opportunity.
Critics view the sale of K-cups as a monopoly and the
increased competition crippling the business, but logically
the statements do not follow suit when looking at the
coffee industry as a whole. The market for coffee is
extremely competitive as many players fight for shelf
space and pricing advantages. GMCR will undoubtedly be
hurt by private labels entering the market, but it has
already showcased the ability to adapt over the last
decade by expanding internationally and decreasing the
reliance on large distributors. It weathered the storm
back in 2011 with a strong bounce back, and it is poised
to do so again. The company is not a new publicly traded
company with strong pressures to hit short-term earnings
projections, and the long-term initiatives can help the
company maintain double digit sales growth regardless
investor perception.
With talks of GMCR losing market share to private labels,
it announced a deal with Campbell Soup to create K-cup
soup products.7 The coffee maker will be able to heat the
soup as the customer adds the pasta and vegetables.
Both companies have leading brands in the US, and both
look to capitalize on the increasing trend of US
Page 3
INDUSTRY TRENDS
Players throughout the coffee market have experienced a
very profitable 2013, prompting more companies to enter
the business. The aging population and popular specialty
coffee aspect have both increased the number of people
who drink coffee. A central focus for 2014 will be the
number of new entrants into the coffee business, and
whether coffee prices rise dramatically to 2010 levels.
growth to continue is a big indication to the influx of new
competitors into the single-cup business.
Increased Competition
Whole Foods, Safeway, and Kroger are a few of the
companies to have issued their own private-label coffee
capsules and together have taken approximately 8% of
the single-serving coffee market.9 The number remains
relatively low and GMCR has not seen a significant drop
in its revenues/profits, but it has only been a year and the
private labels need a little more time to establish their
footprint. Over the next 1.5 – 2 years the percentage of
market share will grow closer to 17 – 19, and investors
will have a better grasp of GMCR’s future and the
competitive landscape of coffee sales.
Single-serve K-cup packs make up almost 80% of GMCR’s
total sales, so any significant obstacle poses a threat and
the company must work to maintain growth of K-cups at
levels at or above 15%. Increased competition has
increased the access at a cheaper price. Whole Foods did
not follow Starbucks in making a partnership with GMCR,
it decided to sell its own unlicensed products. Others
followed suit, increasing the threat, but GMCR has done a
respectable job in maintaining partnerships with
Starbucks and Dunkin Donuts. The latter companies have
not jumped ship and continue to pay licensing fees. It has
become imperative for GMCR to not only keep these
deals, but keep a successful growing business in order to
one day reel in Whole Foods, etc. A partnership between
GMCR and Whole Foods (organic sector) could provide
some really beneficial options.
Consumption Growth
The last 5-7 has seen a consumer shift from traditional
coffee to specialty coffee. Consumers are becoming more
informed, peaking interest, and developing a greater
appreciation for the vast number of differentiations in
coffee. Strong brand loyalty and continued innovation
will help GMCR move with the increasing consumption
trends. The market CAGR maintaining around 30-35% will
leave CMGR plenty of room to reach double digits sales
growth after private labels take only 15% of market
share.
Coffee Prices
Low coffee prices have given GMCR room to offer
discount prices while maintaining a gross margin over
32%. Arabica bean prices have been cut more than half
since 2011 (from $6.50 to $3.00), and 3Q reports show
gross margins grew by 720 basis points as the coffee
priced dropped to almost five year lows. Robusta beans
recently reached a 15-month high, but still remains down
22% year-to-date.10
The single-cup coffee market obtained a CAGR of 75%
from 2007-2012. Sales in US are expected to continue its
climb to over $5 billion by 2016. Approximate 83% of US
adult population drinks coffee (up 5% from 2012), and
single-cup consumption has been a leading driving force.
Roughly 54% of the same population drink coffee on a
daily basis. Single-cup consumption has risen almost 10%
in the last two years (4%-13%).4 A near certainty of the
Page 4
Licensing deals have been created with both, but
competition remains high and GMCR needs to continue
as a market leader for the partnerships to continue.
*www.finance.yahoo.com
Some thought GMCR offering larger single K-cup value
packs at a lower price was due to the company panicking
from losing share to private labels, but the new offerings
were more about the company having the available
option. Gaining new customers by shifting benefits from
the advantageous coffee prices to its customers was a
cost-efficient plan management decided to pursue. A
weak economic environment in Europe and record glut in
Brazil led to the decreasing coffee prices.11 The conditions
and lowered prices will stay for at least 1-2 more years,
and allow GMCR to raise operating and net profit margin
by
3-5%.
SBUX – Starbucks looks to grow earnings around 20%
over the next five years, justifying its high P/E multiple –
35. It recently acquired Teavana brand to expand into the
tea market and become a global powerhouse like is in the
coffee industry. The acquisition is another step in the
plan to expand globally and continue to add locations at a
rapid rate.12
*www.ibisworld.com – World price of coffee
MARKETS AND COMPETITION
The release of private label single-cup brewers from
Whole Foods, Treehouse, and others has already been
well discussed. The focus shifts back to GMCR’s more
traditional competitors, Starbucks and Dunkin’ Brands.
EPS (ttm) sits at 2.26 as the company continues to hit
record highs in sales. SBUX has benefitted from the same
positive factors as GMCR (increasing consumer
consumption and low coffee prices), and now has
alternative sources of growth with Teavana and its not
widely known subsidiary Evolution Fresh (juice). The
Page 5
company’s strong ROE over 30% and profit margin
hovering around 12% has led to cash increasing to over
$3B and increasing options for growth. SBUX is the coffee
leader, and as GMCR’s leverage position decreased with
the loss of the patent, SBUX remains solid financially and
market player GMCR needs to keep happy with its K-cup
products.12
DNKN – Dunkin’ looks to focus its expansion domestically.
It looks to grow its Baskin-Robbins presence and double
US restaurant locations (from 7,500 to 15,000).
Expanding its types of coffee products has also been an
initiative to create growth and keep up with competitors.
Earnings growth ranging right around 15% over the next
five years is similar to GMCR. Sales will inch closer to $1B,
but the company is still trading at a high multiple - 36.
Investors are confident in its domestic growth plan, and a
20% net profit margin showcases the existence of a
strong business model. However, total debt remains
relatively high at $1.85B (market cap $5B), and restaurant
locations doubling in the US alone appears to be fairly
aggressive.13
Stock Price
Market Cap
P/E (ttm)
Div Yield
Debt/Equity
Prof Margin
Beta
GMCR
70.40
10.6B
24.3
N/A
12.7
10.5%
0.51
SBUX
81.50
61.4B
35.2
1.3%
29.0
12.1%
0.75
DNKN
47.55
5.1B
36.9
1.6%
475.2
20.1%
0.43
GMCR, SBUX, and DNKN look to be in a strong position
financially and are expected to provide positive returns to
shareholders over the next year. GMCR’s growth
potential is higher than the other two, and the
substantially lower P/E multiple (21) indicates the
opportunity to buy is ripe and the window may be closing
soon.
lack of strong economic growth and little movement in
energy prices, both CPI and employment growth will
remain subdued at an estimated CPI of 1.5% with
unemployment slightly higher at 7.3%. Interest rates may
back up from the current unsustainable rates of 0.11% for
the 1 year T Bill and the 2.53% for the 10 year T-Bond, but
we don’t expect them to rise above 0.2% and 3%
respectively. With limited economic growth and an
increase in supplies, we estimate oil prices to remain in
the $95-105 range for the near future. With current
market levels at all-time highs, a pullback of 5% from
current levels is certainly not out of the question.
Despite our lackluster outlook, our concerns for portfolio
construction are related to longer term macro issues,
most notably the upcoming Federal Reserve tapering
process. We are not in a position to predict a starting
point in time, but are confident that it will occur during
the holding period of any new selections for the portfolio.
Given our concerns regarding market impact from the
changes in economic policy from the Fed, we believe that
underweighting holdings that would be most severely
impacted by tapering is a priority. Portfolio holdings that
would be underperformers would likely include higher
yielding stocks and/or sectors, as well as companies with
higher financing needs. These will be areas for potential
future disinvestment.
CATALYSTS FOR GROWTH
The most notable contributor to growth will be the
continued success of single-serving K-cup sales.
Consumers drinking more coffee and switching to singleserving will drive the market, and have the biggest effect
on GMCR’s sales. Listed below are four company aspects
that will contribute to GMCR’s 10% revenue growth, and
fight off private labels entering the single-serving market.
•
ECONOMIC OUTLOOK
Given the current environment of muted economic
growth due to the recent government shutdown,
potential for ongoing fiscal issues, as well as continued
tapering, we do not anticipate any substantial changes in
the current economic outlook. We expect Real GDP
growth will pull back slightly due to fiscal turmoil to a
level closer to 2% versus the 2nd Quarter 2.5%. Due to a
Page 6
•
Introduce new types of coffee – Just announced 3
new varieties within the last two months. Already
have over 200 varieties.1 Introducing new
specialties is simple, relatively inexpensive, keeps
the customer intrigued, and makes sure products
are available for all pallets and regional
differences.
Matching demand – Americans are drinking more
coffee and increasing their knowledge on
specialty coffee. Over 80% of adult Americans
drink coffee, and the specialty market has
developed loyal customers.
•
•
INVESTMENT NEGATIVES
New machines (Vue, Bolt) – brewers focused on
bettering customer experience will drive growth.
Better fit, easier/quicker to use, aesthetically
pleasing, and less volume will enhance usage.
GMCR has focused attention on selling to offices,
where larger batches can be made in a very short
amount of time.
Keurig store – the first store opened in early
November 2013. Stores designed specifically to
educate and provide a positive selling experience
seems to resemble the strategy of Apple.
•
•
INVESTMENT POSITIVES
•
•
•
•
•
•
•
•
Strong revenue growth around 10% over the next
five years, and low coffee prices will contribute to
earnings increasing around 30% over the same
time frame.
Relatively low P/E when compared to
competitors. The coffee business is in a great
position with multiple areas for growth and the
prices of coffee being very low. GMCR has similar
expected growth and trading at a much lower
multiple.
Negative perception has shot the stock down
around 25% as investors have been skeptic of the
new entrants into the K-cup market. However,
sales have not taken a significant hit and the
fundamentals/long-term prospects remain solid.
Large increase in FCF has increased options for
future investment. The company is not expected
to issue a dividend, but having cash has lessened
the pressure on releases and launches of new
products/varieties.
Partnership with Campbell Soup has provided
another avenue for growth. Margins remain high
with coffee, and now is the perfect opportunity
to invest in an alternative.
PEG ratio of 1.26 showcases the opportunity to
invest with earnings looking to jump around 14%
and current stock price being cheap.
Net profit margin and operating margin will both
jump 3-5% in the next 3 years to 12% and 19%,
respectively. COGS will remain low due to coffee
prices not rising significantly.
Fits with Henry Fund’s investment thesis. GMCR
is not a traditional high dividend, low-risk staple
that trades like a bond. It should remain a
positive investment if interest rates rise over the
next 6 months.
•
•
Increased competition selling single-sever
brewers will negatively affect GMCR’s most
important business segment. Competitors have
snagged 8% of the market, and the number will
increase as they have only had a year since the
patent expiration.
Revenue growth will not be able maintain the
recent 25% movement, and will slow down to
around 10%. Also, closing the plant in Toronto
indicates expected growth for the CBU segment
may be under management projections and more
restructuring ahead.
Management has been criticized heavily by
notable investors for a lack of transparency.
Einhorn has recently stated the company is lying
about K-cup sales because of a panic about the
amount of sales competitors have acquired.
GMCR is a very volatile stock and the Henry Fund
does not specialize in timing or momentum
investments. Negative perception could continue
and dismantle the stock if revenues do not
increase at the demanding analyst projections.
VALUATION
GMCR’s valuation is centered on revenues growing at
least 9% over the next five years, coffee prices remaining
low and gross margins creeping up over 35%, thus EPS
increasing at a minimum of 15% over the next 3 years.
COGS not decreasing and raising to 65% of sales would
decrease the target price by approximately $5 and
downgrade the rating to HOLD.
A focal point of the valuation will be sales growth and
specifically, single-serve sales growth. Private labels not
gaining more than 15% of the market share over the next
3 years is an assumption used throughout the model. If
private labels become a dominant force and GMCR’s
single-serve sales remain flat (0-3% growth) or decrease
than the company will be reduced to SELL.
Keeping strong partnerships with SBUX and DNKN over
the next five years was another assumption, along with a
successful launch of the new Keurig stores to
substantially help sales of the coffeemaker. The models
do not factor in expansion into Europe or other regions
internationally (besides Canada). Another area affecting
the Buy/Sell discipline is the partnership with Campbell
Soup. The model has factored in modest growth from the
sale of soup packets, and the first two years of the launch
Page 7
13. www.finance.yahoo.com
Ticker Symbol: DNKN
could significantly impact sales and the FCF currently
coming into the company.
REFERENCES
1. http://www.sec.gov/Archives/edgar/data/90995
4/000104746913010696/a2217408z10-k.htm
Green Mountain Coffee Roasters 10-K
2. http://finance.yahoo.com/news/greenmountain-coffee-roasters-unveils183400520.html
“Green Mountain Coffee Roasters Unveils the
Keurig Store”
3. http://seekingalpha.com/article/1757972-greenmountain-coffee-roasters-restructuring-theghosts-of-acquisitions-past?source=yahoo
“Green Mountain Coffee Roasters: Restructuring
the Ghosts of Acquisitions Past”
4. http://www.fool.com/investing/general/2013/11
/04/green-mountain-an-impressive-growth-storythat-can.aspx
“Green Mountain: An Impressive Growth Story
That Can Get Better”
5. www.finance.yahoo.com
Ticker Symbol: GMCR
6. http://seekingalpha.com/article/713881-the-kcup-cloners-dilemma
“The K-Cup Cloner’s Dilemma”
7. http://news.investors.com/business/111613679498-green-mountain-coffee-earnings-growthslows-analysts-upbeat.htm
“Does Green Mountain Coffee Need Caffeine
Growth Jolt”
8. http://www.fool.com/investing/general/2013/11
/15/this-weeks-5-dumbest-stock-moves.aspx
“This Week’s 5 Dumbest Stock Moves”
9. http://www.usatoday.com/story/money/busines
s/2013/10/29/life-after-the-k-cuppatent/3307187/
“With K-Cup patent expired, others try to cash in”
10. http://www.fool.com/investing/general/2013/11
/13/has-green-mountain-hit-peak-k-cups.aspx
“Has Green Mountain Hit Peak K-Cups?”
11. http://www.forbes.com/sites/greatspeculations/
2013/11/15/green-mountain-earnings-preview-kcup-volume-under-spotlight/
“Green Mountain Earnings Preview: K-Cup
Volume Under Spotlight”
12. www.finance.yahoo.com
Ticker Symbol: SBUX
http://news.yahoo.com/green-mountain-buy-morecoffee-despite-fungal-attack-221514284--sector.html
“Green Mountain to buy more coffee despite fungal
attack”
http://www.fool.com/investing/general/2013/11/21/gre
en-mountain-earnings-1-key-takeaway-from-the-co.aspx
“Green Mountain Earnings: 1 Key Takeaway From the
Conference Call”
http://blogs.barrons.com/stockstowatchtoday/2013/11/
21/green-mountain-coffee-never-mind-the-earningsstock-still-a-short-einhornsays/?mod=yahoobarrons&ru=yahoo
“Green Mountain Coffee: Never Mind the Earnings, Stock
Still a Short, Einhorn Says”
http://finance.yahoo.com/news/k-cup-maker-greenmountain-221205293.html
“Green Mountain sees strong revenue in second half of
2014”
IMPORTANT DISCLAIMER
This report was created by a student(s) enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
The intent of these reports is to provide potential
employers and other interested parties an example of the
analytical
skills,
investment
knowledge,
and
communication abilities of Henry Fund students. Henry
Fund analysts are not registered investment advisors,
brokers or officially licensed financial professionals. The
investment opinion contained in this report does not
represent an offer or solicitation to buy or sell any of the
aforementioned securities. Unless otherwise noted, facts
and figures included in this report are from publicly
available sources. This report is not a complete
compilation of data, and its accuracy is not guaranteed.
From time to time, the University of Iowa, its faculty,
staff, students, or the Henry Fund may hold a financial
interest in the companies mentioned in this report.
Page 8
GMCR
Key Assumptions of Valuation Model
Ticker Symbol
Current Share Price
Fiscal Year End
Pre-Tax Cost of Debt
Beta
Risk-Free Rate
Equity Risk-Premium
CV Growth of NOPLAT
DCF Price
GMCR
61.58
Dec. 31
4.92%
0.48
2.91%
5.60%
3.00%
86.89
GMCR
Revenue Decomposition
Fiscal Years Ending Dec. 31
Net Revenues
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
1,356,775
2,650,899
3,859,198
4,260,555
4,682,349
5,122,490
5,573,270
6,041,424
95.38%
45.58%
10.40%
9.90%
9.40%
8.80%
8.40%
Growth Rates
SCBU
826,376
1,406,701
1,560,132
1,712,843
1,886,555
2,051,384
2,208,765
2,350,991
Percent of Revenue
114.99%
53.07%
40.43%
40.20%
40.29%
40.05%
39.63%
38.91%
70.23%
10.91%
9.79%
10.14%
8.74%
7.67%
6.44%
865,861
1,354,001
1,696,553
2,140,911
2,448,475
2,711,709
2,905,622
3,078,642
63.82%
51.08%
43.96%
50.25%
52.29%
52.94%
52.13%
50.96%
56.38%
25.30%
26.19%
14.37%
10.75%
7.15%
5.95%
120,173
596,814
725,864
781,399
822,969
859,881
891,117
921,678
8.86%
22.51%
18.81%
18.34%
17.58%
16.79%
15.99%
15.26%
1,812,410
455,635
1,356,775
396.63%
3,357,516
706,617
2,650,899
21.62%
3,982,549
123,351
3,859,198
7.65%
4,635,153
374,598
4,260,555
5.32%
5,157,999
475,650
4,682,349
4.49%
5,622,974
500,484
5,122,490
3.63%
6,005,504
432,234
5,573,270
3.43%
6,351,311
309,887
6,041,424
Single Serve Packs
834,422
1,704,021
2,708,886
2,911,963
3,202,893
3,461,222
3,739,515
4,031,123
Percent of Revenue
61.50%
64.28%
70.19%
68.35%
68.40%
67.57%
67.10%
66.72%
104.22%
58.97%
7.50%
9.99%
8.07%
8.04%
7.80%
330,772
524,709
759,805
977,961
1,114,159
1,256,356
1,425,042
1,581,299
24.38%
19.79%
19.69%
22.95%
23.79%
24.53%
25.57%
26.17%
58.63%
44.81%
28.71%
13.93%
12.76%
13.43%
10.97%
191,581
422,169
390,507
370,631
365,297
404,912
408,713
429,002
14.12%
15.93%
10.12%
8.70%
7.80%
7.90%
7.33%
7.10%
120.36%
-7.50%
-5.09%
-1.44%
10.84%
0.94%
4.96%
Growth Rate
KBU
Percent of Revenue
Growth Rate
CBU
Percent of Revenue
Growth Rate
Total
Eliminations
Growth Rate
Brewers and Accessories
Percent of Revenue
Growth Rate
Other Products and Royalties
Percent of Revenue
Growth Rate
GMCR
Income Statement
Fiscal Years Ending Dec. 31
2010
Scale
Net sales
Cost of sales
Selling & operating expenses
General & administrative expenses
Operating income (loss)
Other income (expense), net
Gain (loss) on financial/foreign instruments, net
Gain on sale of subsidiary
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Weighted average shares - basic
Net income (loss) per share - basic
2011
2012
2013E
2014E
2015E
2016E
2017E
Thousands
1,356,775
931,017
186,418
100,568
138,772
(269)
5,294
133,209
53,703
79,506
131,529.41
0.6
2,650,899
1,746,274
348,696
187,016
368,913
648
-9157
57,657
302,747
101,699
201,048
146,214.86
1.36
3,859,198 4,260,555 4,682,349 5,122,490 5,573,270 6,041,424
2,589,799 2,748,058 3,006,068 3,263,026 3,566,892 3,872,553
481,493
502,745
533,788
573,719
629,779
664,557
219,010
234,331
252,847
261,247
278,663
314,154
568,896
775,421
889,646 1,024,498 1,097,934 1,190,161
1,819
1,728
1,642
1,560
1,482
1,408
2098
1,500
1,500
1,500
1,500
1,500
26,311
22,983
24,362
25,824
27,373
29,016
30,756
576,141
754,287
866,964 1,000,185 1,071,900 1,162,312
212,641
264,000
303,438
350,065
375,165
406,809
363,500
490,287
563,527
650,120
696,735
755,503
154,933.95 150,285.93 150,285.93 150,285.93 150,285.93 150,285.93
2.34
3.26
3.75
4.33
4.64
5.03
GMCR
Balance Sheet
Fiscal Years Ending Dec. 31
2010
Scale
Cash & cash equivalents
Restricted cash & cash equivalents
Receivables, net
Raw materials & supplies
Finished goods
Inventories
Income taxes receivable
Other current assets
Deferred income taxes, net
Current assets held for sale
Total current assets
Equipment (Production, Coffee, Computer)
Land
Buildings/Furniture/Fixtures
Vehicles
Leasehold improvements/Assets acquired
Construction-in-progress
Total fixed assets
Accumulated depreciation
Fixed assets, net
Intangibles, net
Goodwill
Other long-term assets
Long-term assets held for sale
Total assets
Current portion of long-term debt/Capital lease
Accounts payable
Accrued compensation/expenses
Income tax payable
Other short-term liabilities
Deferred income taxes, net
Other current liabilities
Current liabilities related to assets held for sale
Total current liabilities
Revolving credit facility
Term loan
Other long-term debt
Long-term debt, less current portion
Capital lease & financing obligations, less current po
Deferred income taxes, net
Other long-term liabilities
Redeemable noncontrolling interests
Total Liabilities
Common stock
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total Liabilities + SE
2011
2012
2013E
2014E
2015E
2016E
2017E
4,401
355
172,200
46,328
216,150
262,478
5,350
23,488
26,997
495,269
12,989
27,523
310,321
182,811
489,437
672,248
18,258
28,072
36,231
25,885
1,131,527
58,289
12,884
363,771
229,927
538,510
768,437
32,943
35,019
51,613
1,322,956
63,946
14,172
421,795
298,239
639,083
937,322
35,908
38,171
56,258
1,567,572
413,677
15,590
458,870
318,400
697,670
1,016,070
39,140
41,606
61,321
2,046,273
770,189
17,149
491,759
343,207
753,006
1,096,213
42,662
45,351
66,840
2,530,163
1,289,306
18,863
523,887
362,263
813,697
1,175,960
46,502
49,432
72,856
3,176,807
1,843,335
20,750
555,811
386,651
869,965
1,256,616
50,687
53,881
79,413
3,860,493
213,016
1,743
35,367
1,020
17,224
72,161
340,531
81,608
258,923
220,005
386,416
9,961
1,370,574
445,845
8,790
76,267
7,860
35,496
147,860
722,118
142,899
579,219
529,494
789,305
47,759
120,583
3,197,887
719,654
11,740
111,649
10,306
123,802
234,442
1,211,593
267,297
944,296
498,352
808,076
42,109
3,615,789
852,111
13,149
170,422
11,337
170,422
293,053
1,510,493
302,099
1,208,395
500,000
808,077
45,899
4,129,943
922,423
14,727
182,612
12,470
206,023
322,358
1,660,613
332,123
1,328,490
500,000
808,078
50,030
4,732,871
1,004,008
16,494
189,532
13,717
215,145
328,805
1,767,701
353,540
1,414,161
500,000
929,290
54,532
5,428,146
1,081,214
18,473
195,064
15,089
222,931
335,381
1,868,153
373,631
1,494,522
500,000
929,290
59,440
6,160,059
1,153,912
20,690
205,408
16,598
235,616
342,089
1,974,312
394,862
1,579,450
500,000
929,290
64,790
6,934,022
19,009
139,220
73,515
1,934
4,377
238,055
173,000
181,513
335,504
92,579
5,191
671,329
6,669
265,511
135,380
9,617
243
34,613
19,341
471,374
331,202
248,437
2,999
575,969
189,637
27,658
21,034
1,285,672
9,748
279,577
171,450
29,322
245
29,645
519,987
228,787
242,188
2,700
466,984
54,794
270,348
32,544
9,904
1,354,561
11,213
285,457
178,943
32,254
250
32,313
540,431
215,060
227,657
2,000
433,504
59,725
293,978
35,473
10,795
1,373,906
14,519
304,353
187,294
35,480
250
35,221
577,117
202,156
213,997
2,000
403,635
65,101
313,717
38,666
11,767
1,410,002
12,313
322,717
199,777
39,028
250
38,391
612,476
190,027
201,157
2,000
380,871
70,960
338,084
42,145
12,826
1,457,363
9,979
334,396
211,784
42,930
250
41,846
641,186
178,625
189,088
2,000
359,734
77,346
356,689
45,939
13,980
1,494,875
8,621
320,195
223,533
47,223
250
45,613
645,435
167,908
177,743
2,000
339,029
84,307
380,610
50,073
15,239
1,514,693
13,282
473,749
213,844
(1,630)
699,245
1,370,574
15,447
1,499,616
411,727
(14,575)
1,912,215
3,197,887
15,268
1,464,560
771,200
10,200
2,261,228
3,615,789
15,207
1,464,561
1,261,487
14,782
2,756,036
4,129,943
15,146
1,464,562
1,825,013
18,148
3,322,869
4,732,871
15,086
1,464,563
2,475,133
16,001
3,970,783
5,428,145
15,025
1,464,564
3,171,868
13,727
4,665,185
6,160,059
14,965
1,464,565
3,927,371
12,428
5,419,329
6,934,022
Thousand
GMCR
Cash Flow Statement
Fiscal Years Ending Dec. 31
2011
2012
Scale
Thousands
Net income (loss)
79,506
201,048
Depreciation
29,484
72,297
Amortization of intangibles
14,973
41,339
Amortization of deferred financing fees
6,158
Loss (gain) on extinguishment of debt
19,732
Unrealized loss (gain) of foreign currency
1,041
Loss (gain) on disposal of fixed assets
573
884
Loss (gain) on sale of subsidiary, excluding transaction costs
Provision for doubtful accounts
610
2,584
Provision for sales returns
40,139
64,457
Loss (gain) on futures derivatives
(188)
3,292
Unrealized loss (gain) on financial instruments, net
Tax benefit (expense) from exercise of non-qualified stock option
(713)
(6,142)
Excess tax benefits from equity-based compensation plans
(14,590)
(67,813)
Deferred income taxes
(6,931)
(8,828)
Deferred compensation & stock compensation
8,110
10,575
Contributions to the ESOP
1,376
Other adjustments
Receivables
(102,297) (157,329)
Inventories
(116,653) (375,709)
Income taxes payable (receivable), net
10,065
63,487
Other current assets
(10,767)
(715)
Other long-term assets, net
(4,487)
(11,454)
Accounts payable
32,844
106,202
Accrued compensation costs
(1,830)
2,233
Accrued expenses
23,405
25,600
Other current liabilities
1,645
(3,118)
Other long-term liabilities
5,191
10,964
Net cash flows from operating activities
(10,535)
785
Change in restricted cash
2,074
Proceeds from sale of short-term investments
50,000
Proceeds from receipt of note receivable
1,788
499
Acquisition of Timothy's Coffee of the World Inc.
(154,208)
Acquisition of Diedrich Coffee, Inc.
(305,261)
Acquisition of LJVH Holdings, Inc. (Van Houtte), net of cash acq
- (907,835)
Proceeds from the sale of subsidiary, net of cash acquired
Capital expenditures for fixed assets
(118,042) (283,444)
Proceeds from disposals of fixed assets
526
1,192
Other investing activities
(158)
Net cash flows from investing activities
(525,197) (1,187,672)
Net change in revolving line of credit
145,000
333,835
Proceeds from issuance of common stock under compensation p
8,788
17,328
Proceeds from issuance of common stock for private placement
291,096
Proceeds from issuance of common stock for public equity offeri
673,048
Financing costs in connection with public equity offering
(25,685)
Cash distributions to redeemable noncontrolling interests shareh
(1,063)
Repurchase of common stock
Excess tax benefit from equity-based compensation plans
14,590
67,813
Payments on capital lease & financing obligations
Capital lease obligations
(217)
(8)
Proceeds from borrowings of long-term debt
140,000
796,375
Deferred financing fees
(1,339)
(46,009)
Repayment of long-term debt
(8,500) (906,885)
Other financing activities
Net cash flows from financing activities
298,322 1,199,845
Change in cash balances included in current assets held for sale
(5,160)
Effect of exchange rate changes on cash & cash equivalents
790
Net increase (decrease) in cash & cash equivalents
(237,410)
8,588
Cash & cash equivalents at beginning of period
241,811
4,401
Cash & cash equivalents at end of period
4,401
12,989
Cash paid for interest
6,486
33,452
Cash paid for income taxes
42,313
58,182
2010
363,500
135,656
45,991
6,050
(6,557)
2,517
(28,914)
3,197
107,436
6,310
(1,006)
(12,070)
60,856
18,079
334
(159,317)
(92,862)
16,457
(6,900)
(469)
(17,668)
(4,908)
39,701
(2,718)
5,090
477,785
(2,875)
137,733
(401,121)
618
(265,645)
(108,727)
12,092
(76,470)
12,070
(7,558)
(7,814)
3,283
(173,124)
5,160
1,124
45,300
12,989
58,289
20,783
136,407
2013E
2014E
2015E
2016E
2017E
490,287
(1,288)
(58,024)
(68,312)
(100,573)
(2,965)
(3,152)
(4,645)
0
251,327
563,527
(1,417)
(37,075)
(20,161)
(58,587)
(3,232)
(3,435)
(5,063)
0
434,556
650,120
(1,559)
(32,889)
(24,807)
(55,336)
(3,523)
(3,745)
(5,519)
0
522,743
696,735
(1,715)
(32,128)
(19,056)
(60,691)
(3,840)
(4,082)
(6,016)
0
569,208
755,503
(1,886)
(31,924)
(24,389)
(56,268)
(4,185)
(4,449)
(6,557)
0
625,845
Equipment (Production, Coffee, Com (132,457)
Land
(1,409)
Buildings/Furniture/Fixtures
(58,773)
Vehicles
(1,031)
Leasehold improvements/Assets ac
(46,620)
Construction-in-progress
(58,611)
Accumulated depreciation
34,802
Intangibles, net
(1,648)
Goodwill
(1)
Other long-term assets
(3,790)
Long-term assets held for sale
-
(269,537)
(70,312)
(1,578)
(12,189)
(1,134)
(35,601)
(29,305)
30,024
(1)
(4,131)
(124,227)
(81,585)
(1,767)
(6,921)
(1,247)
(9,121)
(6,447)
21,418
(121,212)
(4,503)
(211,385)
(77,206)
(1,979)
(5,532)
(1,372)
(7,786)
(6,576)
20,090
(4,908)
(85,269)
(72,698)
(2,217)
(10,344)
(1,509)
(12,685)
(6,708)
21,232
(5,350)
(90,277)
1,465
5,880
7,493
2,932
5
2,668
(13,727)
(14,531)
(700)
4,931
23,630
2,929
891
23,867
3,306
18,896
8,351
3,225
2,908
(12,904)
(13,659)
5,375
19,739
3,193
972
39,401
-2,206
18,364
12,483
3,548
3,170
(12,129)
(12,840)
5,859
24,367
3,480
1,059
45,155
-2,334
11,679
12,007
3,903
3,455
(11,402)
(12,069)
6,386
18,605
3,793
1,154
35,178
-1,358
(14,201)
11,748
4,293
3,766
(10,718)
(11,345)
6,961
23,920
4,134
1,258
18,460
5,657
58,289
63,946
349,730
63,946
413,677
356,513
413,677
770,189
519,117
770,189
1,289,306
554,028
1,289,306
1,843,335
Net Income
Restricted cash & cash equivalents
Receivables, net
Raw materials & supplies
Finished goods
Income taxes receivable
Other current assets
Deferred income taxes, net
Current assets held for sale
Cash Flow from Operations
Cash Flow from Investing
Current portion of long-term debt/Ca
Accounts payable
Accrued compensation/expenses
Income tax payable
Other short-term liabilities
Deferred income taxes, net
Other current liabilities
Current liabilities related to assets h
Revolving credit facility
Term loan
Other long-term debt
Capital lease & financing obligation
Deferred income taxes, net
Other long-term liabilities
Redeemable noncontrolling interest
Cash Flow from Financing
Cash Flow
Cash at Beginning
Cash at End
GMCR
Common Size Income Statement
Fiscal Years Ending Dec. 31
Net sales
Cost of sales
Selling & operating expenses
General & administrative expenses
Operating income (loss)
Other income (expense), net
Gain (loss) on financial/foreign instruments, net
Gain on sale of subsidiary
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
2010
100.00%
68.62%
13.74%
7.41%
10.23%
-0.02%
0.00%
0.00%
0.39%
9.82%
3.96%
5.86%
2011
100.00%
65.87%
13.15%
7.05%
13.92%
0.02%
-0.35%
0.00%
2.17%
11.42%
3.84%
7.58%
2012
100.00%
67.11%
12.48%
5.68%
14.74%
0.05%
0.05%
0.68%
0.60%
14.93%
5.51%
9.42%
2013E
100.00%
64.50%
11.80%
5.50%
18.20%
0.04%
0.04%
0.00%
0.57%
17.70%
6.20%
11.51%
2014E
100.00%
64.20%
11.40%
5.40%
19.00%
0.04%
0.03%
0.00%
0.55%
18.52%
6.48%
12.04%
2015E
100.00%
63.70%
11.20%
5.10%
20.00%
0.03%
0.03%
0.00%
0.53%
19.53%
6.83%
12.69%
2016E
100.00%
64.00%
11.30%
5.00%
19.70%
0.03%
0.03%
0.00%
0.52%
19.23%
6.73%
12.50%
2017E
100.00%
64.10%
11.00%
5.20%
19.70%
0.02%
0.02%
0.00%
0.51%
19.24%
6.73%
12.51%
GMCR
Common Size Balance Sheet
Fiscal Years Ending Dec. 31
Cash & cash equivalents
Restricted cash & cash equivalents
Receivables, net
Raw materials & supplies
Finished goods
Inventories
Income taxes receivable
Other current assets
Deferred income taxes, net
Current assets held for sale
Total current assets
Equipment (Production, Coffee, Computer)
Land
Buildings/Furniture/Fixtures
Vehicles
Leasehold improvements/Assets acquired
Construction-in-progress
Total fixed assets
Accumulated depreciation
Fixed assets, net
Intangibles, net
Goodwill
Other long-term assets
Long-term assets held for sale
Total assets
Current portion of long-term debt/Capital lease
Accounts payable
Accrued compensation/expenses
Income tax payable
Other short-term liabilities
Deferred income taxes, net
Other current liabilities
Current liabilities related to assets held for sale
Total current liabilities
Revolving credit facility
Term loan
Other long-term debt
Long-term debt, less current portion
Capital lease & financing obligations, less current po
Deferred income taxes, net
Other long-term liabilities
Redeemable noncontrolling interests
Total Liabilities
Common stock
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total Liabilities + SE
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
0.32%
0.03%
12.69%
3.41%
15.93%
19.35%
0.39%
1.73%
1.99%
0.00%
36.50%
0.49%
1.04%
11.71%
6.90%
18.46%
25.36%
0.69%
1.06%
1.37%
0.98%
42.68%
1.51%
0.33%
9.43%
5.96%
13.95%
19.91%
0.85%
0.91%
1.34%
0.00%
34.28%
1.50%
0.33%
9.90%
7.00%
15.00%
22.00%
0.84%
0.90%
1.32%
0.00%
36.79%
8.83%
0.33%
9.80%
6.80%
14.90%
21.70%
0.84%
0.89%
1.31%
0.00%
43.70%
15.04%
0.33%
9.60%
6.70%
14.70%
21.40%
0.83%
0.89%
1.30%
0.00%
49.39%
23.13%
0.34%
9.40%
6.50%
14.60%
21.10%
0.83%
0.89%
1.31%
0.00%
57.00%
30.51%
0.34%
9.20%
6.40%
14.40%
20.80%
0.84%
0.89%
1.31%
0.00%
63.90%
15.70%
0.13%
2.61%
0.08%
1.27%
5.32%
25.10%
6.01%
19.08%
16.22%
28.48%
0.73%
0.00%
101.02%
16.82%
0.33%
2.88%
0.30%
1.34%
5.58%
27.24%
5.39%
21.85%
19.97%
29.77%
1.80%
4.55%
120.63%
18.65%
0.30%
2.89%
0.27%
3.21%
6.07%
31.39%
6.93%
24.47%
12.91%
20.94%
1.09%
0.00%
93.69%
20.00%
0.31%
4.00%
0.27%
4.00%
6.88%
35.45%
7.09%
28.36%
11.74%
18.97%
1.08%
0.00%
96.93%
19.70%
0.31%
3.90%
0.27%
4.40%
6.88%
35.47%
7.09%
28.37%
10.68%
17.26%
1.07%
0.00%
101.08%
19.60%
0.32%
3.70%
0.27%
4.20%
6.42%
34.51%
6.90%
27.61%
9.76%
18.14%
1.06%
0.00%
105.97%
19.40%
0.33%
3.50%
0.27%
4.00%
6.02%
33.52%
6.70%
26.82%
8.97%
16.67%
1.07%
0.00%
110.53%
19.10%
0.34%
3.40%
0.27%
3.90%
5.66%
32.68%
6.54%
26.14%
8.28%
15.38%
1.07%
0.00%
114.77%
1.40%
10.26%
5.42%
0.14%
0.32%
0.00%
0.32%
0.00%
17.55%
12.75%
0.00%
13.38%
24.73%
0.00%
6.82%
0.38%
0.00%
49.48%
0.25%
10.02%
5.11%
0.36%
0.00%
0.01%
0.00%
0.73%
17.78%
12.49%
9.37%
0.11%
21.73%
0.00%
7.15%
1.04%
0.79%
48.50%
0.25%
7.24%
4.44%
0.76%
0.00%
0.01%
0.00%
0.00%
13.47%
5.93%
6.28%
0.07%
12.10%
1.42%
7.01%
0.84%
0.26%
35.10%
0.26%
6.70%
4.20%
0.76%
0.00%
0.01%
0.00%
0.00%
12.68%
5.05%
5.34%
0.05%
10.17%
1.40%
6.90%
0.83%
0.25%
32.25%
0.31%
6.50%
4.00%
0.76%
0.00%
0.01%
0.00%
0.00%
12.33%
4.32%
4.57%
0.04%
8.62%
1.39%
6.70%
0.83%
0.25%
30.11%
0.24%
6.30%
3.90%
0.76%
0.00%
0.00%
0.00%
0.00%
11.96%
3.71%
3.93%
0.04%
7.44%
1.39%
6.60%
0.82%
0.25%
28.45%
0.18%
6.00%
3.80%
0.77%
0.00%
0.00%
0.00%
0.00%
11.50%
3.21%
3.39%
0.04%
6.45%
1.39%
6.40%
0.82%
0.25%
26.82%
0.14%
5.30%
3.70%
0.78%
0.00%
0.00%
0.00%
0.00%
10.68%
2.78%
2.94%
0.03%
5.61%
1.40%
6.30%
0.83%
0.25%
25.07%
0.98%
34.92%
15.76%
-0.12%
51.54%
101.02%
0.58%
56.57%
15.53%
-0.55%
72.13%
120.63%
0.40%
37.95%
19.98%
0.26%
58.59%
93.69%
0.36%
34.37%
29.61%
0.35%
64.69%
96.93%
0.32%
31.28%
38.98%
0.39%
70.97%
101.08%
0.29%
28.59%
48.32%
0.31%
77.52%
105.97%
0.27%
26.28%
56.91%
0.25%
83.71%
110.53%
0.25%
24.24%
65.01%
0.21%
89.70%
114.77%
GMCR
Weighted Average Cost of Capital (WACC) Estimation
30 YR US T-Bond
3.80%
Risk Premium
5.60%
Beta
0.48
Cost of Equity
6.49%
Tax Rate
Pre-Tax Cost of debt
Cost of Debt
Market Cap
MV Debt
PV of Operating Leases
Total EV
% Equity Cap
%Debt Cap
WACC
0.36
4.92%
3.15%
9,300,000
323,600
66,949
9,690,549
95.97%
4.03%
6.35%
GMCR
Value Driver Estimation
Fiscal Years Ending Dec. 31
2010
1,356,775
931,017
286,986
138,772
2011
244,971
2,650,899
1,746,274
535,712
368,913
2012
347,294
3,859,198
2,589,799
700,503
568,896
2013E
501,924
4,260,555
2,748,058
737,076
775,421
0.39
53,703
2,065
55,768
101,699
22,486
124,185
212,641
8,963
221,604
264,000
9,501
273,502
303,438
10,071
313,509
350,065
10,676
360,740
375,165
11,316
386,481
406,809
11,995
418,804
-
243
243
245
243
2
250
245
5
250
250
0
250
250
0
250
250
0
250
250
0
Normal Cash
Accounts Receivable
Inventory
Other Current Assets
Operating CA
4,401
172,200
262,478
23,488
462,567
12,989
310,321
672,248
28,072
1,023,630
58,289
363,771
768,437
35,019
1,225,516
63,946
421,795
937,322
38,171
1,461,234
413,677
458,870
1,016,070
41,606
1,930,223
770,189
491,759
1,096,213
45,351
2,403,512
1,289,306
523,887
1,175,960
49,432
3,038,586
1,843,335
555,811
1,256,616
53,881
3,709,643
Accounts Payable
Accrued Expenses
Other Current Liabilities
Income Tax Payable
Non-Interest Bearing CL
139,220
73,515
1,934
214,669
265,511
135,380
34,613
9,617
445,121
279,577
171,450
29,645
29,322
509,994
285,457
178,943
32,313
32,254
528,968
304,353
187,294
35,221
35,480
562,348
322,717
199,777
38,391
39,028
599,913
334,396
211,784
41,846
42,930
630,957
320,195
223,533
45,613
47,223
636,564
Net Operating Working Capital
Net PPE
PV Operating Leases
Net Other OA
Net Other OL
247,898
258,923
30,469
9,961
-
578,509
579,219
53,662
47,759
-
715,522
944,296
66,949
42,109
-
932,266
1,208,395
74,983
45,899
-
1,367,875
1,328,490
83,981
50,030
-
1,803,599
1,414,161
94,059
54,532
-
2,407,629
1,494,522
105,346
59,440
-
3,073,079
1,579,450
117,987
64,790
-
Invested Capital
547,251
1,259,149
1,768,876
2,261,543
2,830,376
3,366,351
4,066,937
4,835,306
244971
547,251
44.76%
347294
1,259,149
27.58%
501924
1,768,876
28.38%
576138
2,261,543
25.48%
663758
2,830,376
23.45%
711453
3,366,351
21.13%
771356
4,066,937
18.97%
244971
1,259,149
547,251
(466,927)
347294
1,768,876
1,259,149
(162,433)
501924
2,261,543
1,768,876
9,258
576138
2,830,376
2,261,543
7,304
663758
3,366,351
2,830,376
127,783
711453
4,066,937
3,366,351
10,867
771356
4,835,306
4,066,937
2,987
547,251
44.76%
6.35%
210201
1,259,149
27.58%
6.35%
267294
1,768,876
28.38%
6.35%
389539
2,261,543
25.48%
6.35%
432451
2,830,376
23.45%
6.35%
483931
3,366,351
21.13%
6.35%
497573
4,066,937
18.97%
6.35%
512965
NOPLAT
Net sales
Cost of sales
Total Operating Expenses
EBITA
Marginal Tax Rate
(+)Provision for Income Taxes
Tax Shield On Interest Expense
Total Adjusted Taxes
Net DT Liabilities Current
Net DT Liabilities Prior
Change in Deferred Tax Liabilities
NOPLAT
Beginning Invested Capital
ROIC
NOPLAT
Current IC
Beginning Invested Capital
Free Cash Flow
Beginning Invested Capital
ROIC
WACC
Economic Profit
(NOPLAT/Beg. Inv Cap)
NOPLAT - (Current IC - Previous IC)
Beg. Invested Capital*(ROIC-WACC)
2014E
2015E
2016E
2017E
576,138
663,758
711,453
771,356
4,682,349 5,122,490 5,573,270 6,041,424
3,006,068 3,263,026 3,566,892 3,872,553
786,635
834,966
908,443
978,711
889,646 1,024,498 1,097,934 1,190,161
GMCR
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
Fiscal Years Ending Dec. 31
DCF Model
Growth Rates
NOPLAT
Invested Capital
ROIC
NOPLAT
Change in IC
FCF
CV
CF to Discount
Periods to Discount
Discount Factor
PV CF
Value of Operations
(-) PV Operating Leases
(-) Total Debt
(-) ESOP
Value of Equity
Shares Outstanding
Intrinsic Value
Partial Year Adjustment
EP Model
NOPLAT
Beg. IC
ROIC
WACC
EP
CV
CF to Discount
Periods to Discount
Discount Factor
PV of EP
PV of Ecominc Profit
Beg. IC (2013)
Value of Operations
(-) PV Operating Leases
(-) Total Debt
(-) ESOP
Value of Equity
Shares Outstanding
Intrinsic Value
Partial Year Adjustment
3.00%
12.00%
6.35%
6.49%
2013E
2014E
2015E
2016E
2017E
10.40%
501,924
2,261,543
28.38%
9.90%
576,138
2,830,376
25.48%
9.40%
663,758
3,366,351
23.45%
8.80%
711,453
4,066,937
21.13%
8.40%
771,356
4,835,306
18.97%
501,924
492,667
9,258
576,138
568,833
7,304
663,758
535,975
127,783
711,453
700,586
10,867
771,356
768,369
2,987
17,251,335
9,258
1
1.06
8,705
7,304
2
1.13
6,458
127,783
3
1.20
106,223
10,867
4
1.28
8,494
17,251,335
4
1.28
13,483,920
501,924
1,768,876
28.38%
6.35%
389,539
576,138
2,261,543
25.48%
6.35%
432,451
663,758
2,830,376
23.45%
6.35%
483,931
711,453
3,366,351
21.13%
6.35%
497,573
771,356
4,066,937
18.97%
6.35%
512,965
13,184,399
389,539
1
1.06
366,269
432,451
2
1.13
382,326
483,931
3
1.20
402,280
497,573
4
1.28
388,911
13,184,399
4
1.28
10,305,137
13,613,799
66,949
323,600
371,133
12,852,117
150,286
85.52
86.89
11,844,923
1,768,876
13,613,799
66,949
323,600
371,133
12,852,117
150,286
85.52
86.89
GMCR
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31
2013E
Key Assumptions
CV growth
CV ROE
Cost of Equity
3.00%
9.00%
6.49%
Future Cash Flows
Earnings Per Share
P/E Multiple
Denominator
Total
Discount Period
Discount Factor
Discounted Cash Flows
Intrinsic Value
Partial Year Adjustment
$
3.26 $
1
1.06
$ 13.96
$ 14.18
2014E
3.75 $
2
1.13
2015E
4.33 $
3
1.21
2016E
4.64 $
4
1.29
2017E
5.03
19.113
5
1.37
13.96
GMCR
Relative Valuation Models
Ticker
FARM
SBUX
DNKN
NSRGY
Company
Farmer Brothers
Starbucks Corporation
Dunking Brands Group
Nestl
GMCR
Green Mountain Coffee $ 61.58
Implied Value:
Relative P/E (EPS13)
Relative P/E (EPS14)
PEG Ratio (EPS13)
PEG Ratio (EPS14)
$
$
$
$
Price
18.59
81.19
48.30
73.08
$
$
$
$
EPS
2013E
$0.79
$2.65
$1.51
$3.90
EPS
2014E
$0.85
$3.18
$1.80
$4.12
Average
3.26
3.75
85.55
86.22
94.81
98.49
P/E 13
23.5
30.6
32.0
18.7
26.2
P/E 14
21.9
25.5
26.8
17.7
23.0
18.9
16.4
Est.
5yr Gr.
20
19.61
15.86
3.8
12
PEG 13
1.18
1.56
2.02
4.93
2.4
1.6
PEG 14
1.09
1.30
1.69
4.67
2.2
1.4
GMCR
Key Management Ratios
Fiscal Years Ending Dec. 31
Liquidity Ratios
Current Ratio
Quick Ratio
Activity or Asset-Management Ratios
Asset to Sales
A/P to Sales
Asset Turnover
Receivables Turnover
Inventory Turnover
Financial Leverage Ratios
Interest Coverage
Debt Ratio
Profitability Ratios
Gross Margin
Operating Margin
Net Profit Margin
Return on Assets
Payout Policy Ratios
Payout Ratio
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
2.08
0.74
2.40
0.74
2.54
0.84
2.90
0.93
3.55
1.54
4.13
2.09
4.95
2.86
5.98
3.75
1.01
0.10
0.99
7.88
3.55
1.21
0.10
0.83
8.54
2.60
0.94
0.07
1.07
10.61
3.37
0.97
0.07
1.03
10.10
2.93
1.01
0.07
0.99
10.20
2.96
1.06
0.06
0.94
10.42
2.98
1.11
0.06
0.90
10.64
3.03
1.15
0.05
0.87
10.87
3.08
Assets/Sales
(A/P)/Sales
Sales/Assets
Sales/A/R
COGS/Inventory
26.21
0.49
6.40
0.40
24.75
0.37
31.83
0.33
34.45
0.30
37.43
0.27
37.84
0.24
38.70
0.22
Operating Income/Interest Expense
Total Liabilities/Total Assets
31.38%
10.23%
5.86%
34.13%
13.92%
7.58%
14.67%
32.89%
14.74%
9.42%
11.37%
35.50%
18.20%
11.51%
13.56%
35.80%
19.00%
12.04%
13.64%
36.30%
20.00%
12.69%
13.74%
36.00%
19.70%
12.50%
12.84%
35.90%
19.70%
12.51%
12.26%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Current Assets/Current Liabilities
(Cash & Equivalents + A/R)/Current Liabilities
(Sales-COGS)/Sales
Operating Profit/Sales
Net Income/Sales
Net Income/Beginning Assets
(Dividends/Share)/(Net Income/Share)
Present Value of Operating Lease Obligations
Operating
Leases
8577
7588
5681
5460
5514
3418
36238
5769
30469
Fiscal Years Ending Dec. 31
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
8577
7588
5681
5460
5514
3418
6.00%
1.0
PV Lease
Payment
8091.5
6753.3
4769.9
4324.8
4120.4
2409.6
30469.4