Profit warning crushes Green Mountain shares

The single-cup coffee vendor shocks analysts with a revenue miss and lower guidance.

By Charley Blaine May 2, 2012 8:55PM
Updated at 4:07 p.m. ET Thursday

What does it take to lose nearly half of your company's market capitalization in a day?

If you're Green Mountain Coffee Roasters (GMCR), you surprise Wall Street with a revenue miss. Then you guide lower for the fiscal year on revenue and earnings. And then you guide lower on revenue and earnings for the fiscal third quarter.

Oh, while you're at it, you note that your inventories doubled in size from a year ago. And you took a write-down of the value of some of your finished products and seasonal products, like cocoa, because sales in the quarter that ended on March 24 just weren't as good as you'd expected.

The result: Green Mountain Coffee shares were tanking Thursday, closing down 47.5% at $26. The stock had already got crushed in after-hours trading Wednesday. Once as high as $115.98, it has lost more than 75% of its value since mid-September.

Needless to say, the earnings report led to a pointed -- if polite -- conference call with analysts over what happened.

Post continues below.
Well, the company saw slowing growth in sales of its single-serve coffee packets. Green Mountain sells single-serve packets of coffee, teas and cocoa and markets Keurig brewers designed to handle the packets. Problem is a lot of other people are starting to sell the packets, too.

Like Starbucks (SBUX), but also supermarkets under private labels. 

Maybe a warm winter was partly to blame, CEO Larry Blanford suggested during the conference call. You don't want a hot drink when it's 70 degrees in March.

Maybe, but analysts weren't buying the idea. One wondered if the company's business model was flawed because it's pretty easy for a competitor to make his own coffee packs and put those into Keurigs.

Plus, Starbucks plans to start selling its own brewer, called Verismo, in the fall to handle single-pack coffees and teas. Mind you, Starbucks actually sells single-cup coffee for use in the Keurig.

To respond, Green Mountain is launching a new higher-end brewer to make espressos and the like called the Vue.

Maybe it doesn't have good systems for measuring sudden changes in demand. But Blanford and others said that wasn't the issue. The issue, aside from the weather, is that the business is very fluid.

It hasn't been an easy time for the company since last fall when noted short-seller David Einhorn began asking if the company wasn't inflating its sales. The Starbucks announcement in March hardly helped matters.

For the record, Green Mountain earned 64 cents a share on revenue of $885.1 million in the second quarter. Earnings were up 33% from a year ago and actually ahead of the Street estimate of 58 cents. Revenue was up 37% from a year ago. But the Street was looking for $976.7 million.

For the third quarter, the company expects $861 million to $895 million in revenue and earnings of 48 cents to 53 cents. The Street had been looking for $1.05 billion in revenue and 72 cents in earnings.
26Comments
May 3, 2012 2:55PM
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It's just like the trouble Starbucks had trying to sell a cup of coffee for $5 when you can get a good cup of coffee from McDonalds. There are only just so many people willing to buy a coffee maker for more than $100 that only makes one cup. All this "trendy" stuff has a short attention span. You can buy a coffee maker that will make just one cup. And you can buy a large container of coffee and measure it out to make one cup. Just think of all the wasted resources used to package those little coffee packs. If I remember correctly, there used to be vending machines that brewed fresh coffee a cup at a time back in the day. Here's an idea. Put a "pound" can of coffee in a machine that makes a cup at a time. Notice that I highlighted pound. They used to come in pound cans once.
May 3, 2012 1:05PM
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k cups are way to expensive.  it's that simple.
May 3, 2012 12:17PM
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Mybe people are finally realizing that the coffe is $25 a pound? 12 Kcups for between $8 and  $12. Starbucks and all are the same.
May 3, 2012 12:59PM
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So adjust down by the projected EPS, not by 50%.  Christ.  Analysts, who needs them?  I smell some high frequency trades here.
May 3, 2012 2:54PM
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Take cheap commodity items like water and coffee.  Then bottle the water and sell outrageously priced single serve brewing systems for the coffee.  Then, I suppose, complain about the cost of gasoline per gallon - which is cheap compared to your water and coffee.  The power of marketing is amazing.
May 3, 2012 11:43AM
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Major overreaction?  They are profitable and growing, yet treated like a company losing money hand over fist.  Maybe a bounce coming?
May 3, 2012 1:39PM
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Don't you just love the smell of fresh roasted coffee!
May 3, 2012 11:45AM
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Manipulators pretty much in control down here...They did their thing at about 1030 hrs or so but we've managed to minimize the damage a bit....Do not be too hopeful though, too many of these cheating scumbags....Will try to bring us down big again anytime now....Tomorrow will be a key day...We will see how are those employment numbers going to be "fixed".

May 3, 2012 12:23PM
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I always thought Green Mountain was over-valued.
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I tried to warn them that their pricing model had gotten greedy.  Convenience has a price/value, but for them to assume that their product is immune from price elasticity problems was foolish and greedy at the same time.  Sixty to seventy cents for a serving is really pushing the price envelope, when a single serving of ground pot brewed coffee costs about nine cents.   Sometimes, in a relatively weak economy, you must shun price hikes, even when the cost of the raw product has increased, as was the case with coffee beans.
May 3, 2012 11:04AM
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Or maybe their stock is tanking because people realized Green Mountain coffee is terrible..
May 3, 2012 11:13AM
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Or maybe because of of their biggest customers, Brueger's Bagels, dropped them for another brand?  (This new brand is TERRIBLE, BTW.)
May 3, 2012 1:57PM
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Remain defensive....Like we said earlier, manipulators taking over on and off the floor...At 1340 hrs they called to accelerate the selling even more, down almost triple digits now, why? Because they can, of course....Play it safe for the rest of the day and tomorrow....We will find out soon enough. Be very careful.
May 3, 2012 2:45PM
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Why would anyone use those single serve packets anyway?  People can buy a one-cup filter combo which makes a good cup of coffee, the type used in Europe for much less money. The Keurig machine makes an expensive cup of coffee, and the machine is one more gadget on a countertop.  Didn't someone warn investors asbout this problem a year or so ago?
May 3, 2012 12:30PM
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At about 1150 hrs they called to accelerate the selling so down we go again...Will be a very volatile day once again...Be cautious out there.....More later.
May 3, 2012 3:12PM
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The street sure gets repaved a lot.
May 3, 2012 2:51PM
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Don't mind paying for a decent cup of coffee, thus take one Rancilio Espresso maker, Get from Costco their Starbucks 2 pound French Roast beans. Start up the Gaggio grinder and voila we are of the perfect cup of coffee. K-Cups like Nespresso are methods for extorting from coffee lovers. Serves them right to tank.
May 3, 2012 4:02PM
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 To bad this won't effect the crazy price for coffee. I would love to see it like it was before at half the cost it is now.  I don't do star bucks. WAY TO COSTLY for what you get.
May 3, 2012 2:32PM
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i went back to regular brewed coffee due to the cost since i drink multiple cups a day. Sold my Keurig machine on ebay with a small loss. if the kcups drop in price i might recondsider going back.
May 3, 2012 2:35PM
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u can buy a reusable single serve filter for single serve machines, Herbergers stores, wallyworld has em 17-32 dollars, and use ur own favorite coffee, saves ton....99ers rule
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