PEET Peets Coffee & Tea, Inc. (MM)

Peet's Coffee & Tea Inc (PEET) is scheduled to report its first-quarter 2011 financial results on Monday, May 02, 2011. Currently, the Zacks Consensus Estimate is 34 cents per share and sales estimate is around $88 million.

Fourth-Quarter and Fiscal 2010: A Synopsis

Peet’s, which faces stiff competition from Green Mountain Coffee Roasters Inc. (GMCR) reported fourth quarter 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.

The reported year and quarter comprised of 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 recorded 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 revenues increased 4% year-over-year to $54.6 million and specialty net revenues increased 11% from prior year quarter to $36.9 million.

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

Management Guided

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

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

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

First-Quarter 2011 Zacks Consensus

Analysts covered by Zacks expect Peet’s to post first-quarter 2011 earnings of $34 cents a share. The current Zacks Consensus climbed up by 30.76% from the year ago period and ranges within a low of 31 cents to a high of 39.

The current estimate remained same over last 7 days even though it inched up by one penny over last 30 days.

Our Recommendation

The specialty coffee category is highly competitive and fragmented among various distribution channels. Starbucks Corporation (SBUX) is the largest competitor in the category. Peet’s competes with all sellers of specialty coffee, including Dunkin’ Donuts, New England Coffee, Green Mountain Coffee, Starbucks, Seattle’s Best, and others.

Coffee is the world’s second largest traded commodity and its price is often highly volatile. Though coffee trades in the commodity market, premium quality coffee trades on a negotiated basis at a substantial premium to commodity-priced coffee. Coffee prices can be affected by weather conditions and pest damage, in addition to the politics in the coffee-producing countries. Cyclical price swings in the coffee market are common. Coffee prices have increased significantly since 2005 and with the growth of the specialty coffee industry, Peet's Coffee & Tea could experience significant increase in costs. Further, green coffee costs have also been rising since 2008.

Peet’s currently holds a Zacks #4 Rank. On a long-term basis, we maintain a ‘Neutral’ rating on the stock, but hold a short-term Sell rating.

 
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