Is Green Mountain Coffee Roasters Inc. (GMCR) Headed for Greener Pastures?

Page 1 of 2

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is a stock many love to hate, including me. So it came as no surprise that upon a tepid earnings release on Wednesday, bears jumped on the stock as if it were a salmon heading upstream. In reality (far from the domicile of Mr. Market), Green Mountain Coffee actually posted a decent quarter, and its outlook is closer to analyst expectations than originally thought. But the biggest questions in the minds of many are whether company management has rectified the accounting issues that triggered 2011’s short campaign from famed investor David Einhorn, and how the company is navigating in a post-K-Cup-patent world. Has Green Mountain moved on to greener pastures, or is it still in the mud?

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)Skeptical growth
Whether you like the company or not, it is impossible to deny its impressive growth over a relatively short period of time. Green Mountain Coffee Roasters, with all of its ups and downs, gave its shareholders more than 500% in capital appreciation over a five-year period. If shareholders were lucky enough to jump ship in 2011, they would have locked in over 1,100% in three-and-a-half years. You only need one of those in your portfolio to live easy for the rest of your days.

Like many a too-good-to-be-true story, though, it appeared Green Mountain was… too good to be true. At the 2011 Value Investing Congress, David Einhorn took to the stage lambasting Green Mountain’s accounting practices and its pending K-Cup patent expiration. He wondered why the company stopped providing investors with some crucial K-Cup consumption figures, and it quickly became clear that Green Mountain’s meteoric growth was slowing down. His presentation sank the stock like the Bismarck from triple digits to barely over $15 per share.

The stock has recovered to just under $50 since then, but Einhorn is still short and doesn’t find the company in much better shape than it was two years ago. The hedge fund manager has yet to comment about Green Mountain’s latest accounting standards, but as of last October he was still highly skeptical that the company had properly addressed its numbers issues.

So what were the numbers for this latest earnings release, and do they seem cleaner than previous quarters’?

Soft beat
Green Mountain managed to eke out a few bucks over analyst sales estimates with $1.34 billion, or $0.70 per share, in earnings. Consensus estimates hovered around $0.65. This was the first full quarter the company operated after its K-Cup patent expired and knockoffs began flooding the market.

It would appear on the surface as though Green Mountain is navigating these free-market waters quite well, with stabilizing sales after last quarter’s drop due to imitators taking up real estate on the shelves. Are K-Cup addicts that brand-sensitive, or have the generic labels just not been able to put a big enough dent in the market share yet?

The masters of generic either are in development or have already released a K-product: Wal-Mart Stores, Inc. (NYSE:WMT)‘s Café Escapes, SUPERVALU INC. (NYSE:SVU)‘s private-label brand, to name just a couple.

Page 1 of 2