Green Mountain gets the last laugh on critics

With earnings that surprised even bullish Wall Street analysts, has the coffee company turned the corner?

By Jonathan Berr Nov 28, 2012 1:45PM
Green Mountain Coffee (GMCR) turned the tables on its many critics Tuesday by posting earnings that not only beat Wall Street expectations, but obliterated them. 

Shares of the company surged 24% in midday trading Wednesday as Wall Street cheered the results -- and short-sellers, who have long targeted the stock, were squeezed.

Profit at the Waterbury, Vt., company rose 22% to $91.9 million, or 58 cents per share, from $75.4 million, or 47 cents, a year earlier.
Revenue rose 33% to $946.7 million, fueled by strong demand for the K-Cup coffee pods used in Green Mountain's brewers. Excluding one-time items, profit was 64 cents, beating the 48-cent average estimate of analysts surveyed by Bloomberg News. The revenue figure also beat analysts' forecasts of $904.07 million. Even critics such as CNBC's Herb Greenberg were impressed.

"Blowout would be an understatement," he said Wednesday on the network. Of course, Greenberg added that the fiscal fourth-quarter results were lower than what the company originally expected before it slashed its outlook earlier in the third quarter.

There was plenty in Green Mountain's results for investors to like. Sales of K-Cups, whose patents recently expired, rose 59% to $2.7 billion in the fiscal year ended Sept. 29. Revenue from brewers and accessories surged 45% to $759.8 million. Green Mountain sold 1.8 million Keurig single-cup brewers during the fourth quarter. It continues to add K-Cup licensees and the company points out that no single company makes up more than 6% of sales.Image: Coffee Woman (Bloomimage/Corbis)

"Last quarter we discussed our expectations for our addressable U.S. brewer opportunity and the potential impact of non-licensed single-serve packs, both brand name and store brand, on our business," said CEO Larry Blanford, who is being replaced next month by former Coca Cola (KO) executive Brian Kelly, during the earnings conference call. "Since then we've seen single-serve pack entrants and new single-serve brewer entrants, but to date we've seen nothing that causes us to change our expectations."

In fact, the company raised its full-year earnings outlook to $2.74, beating the $2.49 analysts expected.

Challenges abound for Green Mountain, such as an ongoing investigation by the Securities and Exchange Commission and rising competition. Starbucks (SBUX) recently began selling its Verismo single-cup coffee and espresso brewer, which is expected to be a formidable rival to the Keurig and to the new Vue brewer from Green Mountain. The Vue system, which makes cappuccinos and lattes, will also contend with Nestle's (NESN) Nespresso makers.

Wall Street has an average 52-week price target on the stock of $38.55, up 6% from where it currently trades. However, this is not a stock for the faint of heart. Investors are advised to avoid this name until they can be sure that it has proven the naysayers wrong.

--Jonathan Berr is not is a huge fan of K-Cups but likes the stock of the company that makes them. Follow him on Twitter@jdberr

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