Green Mountain's Greener Pastures?

I've used the whole "climbing" metaphor in reviewing Green Mountain Coffee Roasters' (Nasdaq: GMCR  ) last couple of quarterly earnings reports. But following the company's most recent quarter, it seems the stock itself is on the ascent, jumping 10% the day the company released its latest results.

Note that Green Mountain has changed its quarterly calendar to four 13-week quarters; it previously reported a 16-week first quarter and 12 weeks for the second, third, and fourth quarters, except in years with a 53rd week. Comparing everything using 13-week periods, Green Mountain's first-quarter net income decreased 16% to $2.4 million, or $0.30 per share. Net sales increased 56.8% to $83.3 million. That profit drop nonetheless beat analysts' estimates.

The aftereffects of acquiring single-serving brewing system and K-Cups maker Keurig still mar Green Mountain's financials. The Keurig purchase explains the burgeoning interest expense from Green Mountain's debt, rising to $1.8 million from $84,000 in the year-ago period. In the conference call, management said the combined effects of the acquisition, including interest expense, stock option expense, and amortization expense, led to an earnings decrease of $1.7 million, or $0.12 per share.

Green Mountain shipped fewer pounds of coffee to both supermarkets and convenience stores, though the company is experiencing fluctuations in inventory replenishments at ExxonMobil's (NYSE: XOM  ) locations in the latter category. However, the company succeeded with its Fair Trade and organic options, including its co-branded Newman's Own coffee, marking a 17% increase in that channel.

In its conference call, Green Mountain management said it's also enjoying continued strong sales in its deal to supply coffee to McDonald's (NYSE: MCD  ) . The Golden Arches tapped Green Mountain as part of its effort to shore up its breakfast and coffee audience against Starbucks (Nasdaq: SBUX  ) and other prospective rivals.

In other interesting news, Keurig has filed suit against Kraft (Nasdaq: KFT  ) , stating that the food giant's Tassimo T-DISC single-serve beverage cartridges infringe on one of Keurig's patents. It's seeking to prevent Kraft from selling the T-DISC and requesting damages for patent infringement.

If some investors seem optimistic, it may stem from Green Mountain's guidance for top-line growth of 35% to 45% in 2007, with similar increases predicted for net income and EPS. (That's without the effect of Keurig, which expects strong double-digit sales in both the office segment and the consumer direct channel.)

Management thinks it can maintain sales and earnings-growth rates of 20% to 25% over the next few years. That helps, considering that Green Mountain's currently trading at 30 times forward earnings. Such high P/Es are usually reserved for fast growers like rival Starbucks.

For the last few quarters, Green Mountain's continued digestion of Keurig has weighed on its profits. Personally, though, given all the moving parts and the difficulty of untangling them, I'm keeping a wait-and-see attitude regarding an investment in Green Mountain, especially when its shares seem to be climbing to lofty heights.

Pour yourself a cup of Green Mountain articles:

• Revisit last quarter's results.
• Here's Green Mountain's third quarter, too.
• Green Mountain was voted a great corporate citizen last year, but that's not the only reason to choose an investment.

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Alyce Lomax owns shares of Starbucks. Kraft is an Income Investor pick. The Fool has a disclosure policy.