Green Mountain Coffee Roasters Inc. (GMCR): Have You Seen This Yet?

Few companies attract as much attention as Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). Once on the list of businesses that were “Einhorned,” it will forever remain on the list of the most controversial stocks.

Recently the company reported its fiscal second-quarter 2013 earnings to much applause from Wall Street. Key highlights included:

14% revenue growth from the prior year quarter
Strong free cash flow of $202 million
A new agreement with Starbucks Corporation (NASDAQ:SBUX)

What was the most material? You guessed it! Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s new 5-year agreement with Starbucks Corporation (NASDAQ:SBUX), which was so monumental to the company that it deserved its own separate press release when earnings were released.

A new relationship

Starbucks needs Green Mountain Coffee Roasters just as much as Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) needs Starbucks. The new agreement makes Starbucks the exclusive premium brand for K-cups.

Starbucks Corporation (NASDAQ:SBUX) will triple the number of brands it sells in convenient K-cups for Keurig coffeemakers. New brands will include Seattle’s Best, Teavana Teas (recently acquired by Starbucks), and Starbucks Cocoa, among others.

The partnership is a match made in heaven.

Starbucks will effectively control the super-premium K-cup market in an exclusive deal with Keurig. This helps Starbucks retain price-sensitive consumers who might not stop by Starbucks on their way to work for a very premium-priced coffee. It also allows Starbucks Corporation (NASDAQ:SBUX) to introduce its other lesser-known brands to at-home coffee and tea consumers.

The release highlights the fact that K-cups make up 25% of all grocery coffee sales. The explosive growth in K-cup consumption is something that all coffee companies want to ride to fatten their bottom lines.

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) wins in that it is able to claim all of Starbucks many lines of coffee and teas for its coffeemakers. As Starbucks is one of the best brands – more accurately, THE brand in premium coffee – Green Mountain can claim Starbucks Corporation (NASDAQ:SBUX) fans as its own.

This helps insulate Green Mountain from competitive risks that emerged when the company lost its patent on the K-cup. Patent expiration was one of many reasons why the company’s stock price plummeted from a high of over $100 per share to $17 per share from September 2011 to July 2012.

Targeting a new market

From the conference call, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is pushing for growth in a new market – small restaurants and cafes. The company believes that it can drive the bottom line by working out new solutions aimed at small-volume coffee vendors.