Green Mountain Coffee Roasters (GMCR) Rallies on Strong Quarterly and Full-Year Guidance
Shares of Green Mountain Coffee Roasters (GMCR: Charts, News), the maker of Keurig coffee brewers and its K-Cup single-serving coffee pods, rallied over 24% yesterday after the company raised its quarterly and full-year guidance far above analyst expectations.
The stock had crashed 70% since last September, after the company posted disappointing consecutive earnings, which were exacerbated by the arrival of Starbucks' (SBUX
) Verismo single-serve brewer. Many investors believe that Starbucks perceived betrayal - since Starbucks had previously produced K-Cups for Green Mountain's Keurig brewer - would sink the company, and short sellers crushed the stock. Daily Chart
Prolific hedge fund manager David Einhorn, whose short positions are closely followed by investors, has openly questioned Green Mountain's accounting practices, sales figures and growth projections. Green Mountain was subject to a SEC probe into accounting irregularities earlier this year, and founder Robert Stiller was demoted due to "suspicious" stock sales, which he attributed to margin calls. Green Mountain's K-Cup patents also expired in September, which has opened the door for lower-cost rivals to chip away at the company's dominant market share and strong margins. Starbucks' Verismo and Nestle's Nespresso pod-based brewers are also prime threats to the company's core customer base. Both companies utilize Green Mountain's razor to razor-blades business model, in which brewers are sold at thin margins to generate new sales of higher-margin coffee pods. However, Green Mountain's patents for its higher-end Vue system are still valid, which could help offset its Keurig losses. The company has also branched out into fruit-based health drinks, in an effort to diversify its product base. For the quarter ending on September 29, Green Mountain posted earnings of 58 cents per share, or $91.9 million, up from 47 cents per share, or $75.4 million, a year earlier. Excluding one-time charges, Green Mountain earned 64 cents, topping the analyst estimate of 48 cents per share, on the same basis. Revenue also surged 33% to $946.7 million, topping the analyst estimate of $902.7 million. The company also raised its full year EPS forecast to $2.64 to $2.74 per share, up from its prior guidance of $2.55 to $2.65 per share. It also expects to finish the current first quarter at 62 to 67 cents per share. Analysts on average had expected full year earnings of $2.51 per share, and quarterly earnings of 59 cents per share. Full-year sales are expected to increase by 15% to 20%, while first quarter sales are expected to grow between 14% to 18%. Bullish analysts believe that a strong holiday shopping period, starting with Black Friday and ending with after-Christmas sales, will drive Keurig sales, which will turn new customers into steady K-Cup buyers. Williams Capital Group analyst Marc Riddick offered bullish comments regarding Green Mountain. "I do think it allows some long-only investors the opportunity to take a fresh look at the name," stated Riddick. "A strong quarter, a good move in this stock and a new CEO coming onboard is a fairly powerful combination." Riddick is referring to the retirement of CEO Lawrence Blanford, who will be replaced by Coca-Cola (KO
) executive Brian Kelley. Analysts believe that the appointment of Kelley, who was president and general manager of still beverages and supply chain in North America, will give the company stronger credibility to silence short sellers. Shares of Green Mountain trade at 13.45 times forward earnings with a 5-year PEG ratio of 0.56. The stock does not pay a dividend. Other News About GMCR Green Mountain Coffee Hikes Forecast; Shares Up 22 Percent
Green Mountain boosts its quarterly and full-year earnings guidance. Green Mountain Results Perk Up Short-Sellers
Short sellers aren't convinced by Green Mountain's rosy guidance. Other Stocks in the News Smucker's 2Q In Line, Updates View
Smucker's posts steady earnings and guidance. Starbucks Boosts Presence in China
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Published on Nov 29, 2012
By Leo Sun