Green Mountain shares getting roasted

The popular maker of Keurig coffee machines plummets on news of an SEC investigation.

By Kim Peterson Sep 29, 2010 12:27PM
Credit: (© Toby Talbot/AP)
Caption: A single-serving coffee maker at the Green Mountain Coffee Roasters outlet store in Waterbury, Vt.Shares of Green Mountain Coffee Roasters (GMCR) were down about 17% in midday trading as investors reeled from an after-hours disclosure Tuesday night.

Buried at the bottom of an 8-K regulatory filing, Green Mountain delivered some bad news: The U.S. Securities and Exchange Commission is investigating the company and has requested documents.

The SEC isn't saying much, but based on the request, Green Mountain thinks "certain revenue recognition practices" are the focus. Also in question is the company's relationship with one of its vendors.

That's surprising news for a Wall Street darling. Green Mountain has returned an annualized 63% since 2007, TheStreet.com reports, and has boosted profits by 74% a year over the past three years.

Green Mountain shares have soared this year. The stock hovered under $10 until about spring 2009, and in 2010 shares jumped from $27 to $37.

But Wednesday, after the SEC investigation was disclosed, shares fell to the $31 range. Good news for the short-sellers, who have been waiting for a drop for some time. Post continues after video:
Shockingly, it took mere hours for lawyers to jump in. At least one law firm has also begun investigating Green Mountain and is putting out the class-action feelers by recruiting shareholders. (Thanks to the Footnoted blog for the information).

Green Mountain makes the popular Keurig-brand coffee brewers, known for producing a single cup of coffee made from a K-cup insert. The company sells coffee for the machines under the Newman's Own, Tully's and Caribou brands.

There were a couple of more details in that 8-K. One had to do with an accounting error from 2007 that Green Mountain discovered. The error caused the company to overstate its income from that point on, and by June of 2010 that cumulative error amounted to $4.4 million in overstated profit.

Green Mountain said the accounting error was not material to the fiscal years from 2007 to the present, so it's unlikely that the share price drop was directly related to this discovery.
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