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Coffee Roasters staffing may turn seasonal

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Posted: Thursday, May 10, 2012 2:00 pm

Net sales increase of 37% fell below company forecast

Green Mountain Coffee Roasters may increase its reliance on seasonal production workers, in response to disappointing winter beverage sales.

The company’s stock tumbled last week after net second-quarter sales were lower than expected.

Company executives had predicted a 45 to 50 percent increase in net sales over last year. Instead, the company’s actual sales of $885.1 million were a 37 percent increase from year-ago results.

Investors moved quickly to sell stock in heavy trading after the report May 2, leading to a $25-per-share drop in value.

The stock is trading this week at around $25.

“We think that the unseasonably warm weather experienced in many parts of the U.S. adversely affected sales of our seasonal beverages, such as hot cocoa and hot apple ciders,” Larry Blanford, Green Mountain Coffee’s president and CEO, told stock analysts during a conference call last Wednesday. The lower sales also meant more company products hit their expiration date before they could be sold, he said.

Sales between Christmas and March 24 were between $54 million and $86 million lower than forecast. About one-third of that stemmed from selling fewer seasonal beverage portion packs than expected, Chief Financial Officer Fran Rathke said on the call. A little over a third was attributed to sales of coffee portion packs and the final 30 percent to sales of the Keurig brewer, she said.

One lesson the company is taking away from the winter’s sales is that the way it manages production should change, Blanford said. Executives are evaluating ways to “appropriately staff for the seasonal component,” which could result in “adding a flexible component to our hiring plan.” That is, more temporary workers.

Another result is that the company is slightly scaling back how much it will spend this fiscal year on expanding its production capacity. Although factories in Essex Junction and Virginia are continuing to be developed, the company expects to invest no more than $575 million, down from a planned $700 million. About half that money has already been spent, Rathke said.

Analysts on the call questioned why the company would plan to spend even that much, if growth in demand appears to be on the decline. Green Mountain Coffee Roasters now forecasts that fiscal year 2012 sales will be only 45 to 50 percent higher than last year, rather than the 60 to 65 percent presented in March.

Several analysts also expressed concern that Green Mountain Coffee Roasters management did not appear to fully understand how much brewer sales drive portion pack sales. The company reported shipping 4.2 million brewers during the holiday season, which suggested that demand for portion packs should be stronger.

“You’re telling a good story on the product side, but your (sales) numbers are telling a different story right now,” said Akshay Jagdale, an analyst with KeyBanc Capital Markets, during the call. He went on to question whether the company had a “broken growth model,” pointing to the falling stock price.

Further study is needed into what happened in the second quarter, Blanford said. But the company remains strong and is well positioned for future growth.

“We are running this business for the long term,” he said. “The stock price is the stock price. I think it will eventually reflect what I think is a great business that we built in our building.”

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