Green Mountain Gets Greener

Green Mountain Coffee Roasters (Nasdaq: GMCR  ) has done it again. Despite the difficulties that some of its rivals have endured -- look at Starbucks' (Nasdaq: SBUX  ) decidedly decaffeinated quarter -- Green Mountain's still robust.

Net income increased 20% to $2.9 million, or $0.12 per share, and revenues surged 52% to $126.4 million. Green Mountain shipped 322,000 Keurig brewers in the first quarter, a 166% increase on a year-over-year basis. It also shipped 60% more K-Cups, the single-serving pods of coffee and tea that are compatible with the Keurig single-cup brewers.

The strong performance granted Green Mountain the go-ahead to increase its guidance for fiscal 2008, with sales expected to grow 40% to 45% and earnings expected to grow at a similar or slightly higher rate.  

On the other hand, gross margin dropped to 34.2% of sales versus 38% this time last year. The Keurig brewers actually have lower gross margin than most of the company's other products, so selling more of them pulled down margins. Higher coffee costs also affected gross margin, as well as opening a new packaging plant for K-Cups.

Green Mountain Coffee is becoming one of those corporate poster children for the idea that companies can do good and do well. Being socially responsible is a major part of its mission. Last year, Green Mountain clocked in at No. 1 on The CRO's (thecro.com) list, "100 Best Corporate Citizens of 2007." (More on that list here.)

When it comes to coffee, Green Mountain doesn't compete directly with Starbucks, Peet's (Nasdaq: PEET  ) , and Caribou (Nasdaq: CBOU  ) in the cafe space. It does provide Newman's Own branded coffee to McDonald's (NYSE: MCD  ) in the Northeast. But at the moment, it's making them all look bad, given its amazing growth over the past year or so.

Green Mountain Coffee's share price has long made me nervous because it seemed like a premium price to pay -- like the Starbucks of yore. It's up 80% over the course of the last year. Even now, it trades at 74 times trailing earnings (and it increased by just shy of 12% in Thursday's trading).

Of course, sometimes stocks look pricey for a reason -- one is that the businesses are growing so fast and consistently. Starbucks used to be a good example of that, although recent events show what happens when the growth slows. However, as much as I'm impressed with Green Mountain's continued success, I'd rather see a temporary dip in price before jumping in here.

For another cup o' joe:


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