What Burned the Coffee Stocks Today?

I like my coffee beans aromatic, lightly roasted, and freshly ground. A brand new earnings report from Dunkin' Brands (Nasdaq: DNKN  ) left coffee stocks in general stale and burnt. But they did get a fresh, uniform grind.

Shares of Dunkin' dropped as much as 8.6% on this morning's third-quarter report. Elsewhere around the industry, Peet's Coffee & Tea (Nasdaq: PEET  ) fell 3.1% and is set to report results tonight. Fellow bean roasters Starbucks (Nasdaq: SBUX  ) , Caribou Coffee (Nasdaq: CBOU  ) , and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) also saw share-price cuts above and beyond the general market, with no negative news of their own.

How bad was Dunkin's market-moving report? It's a mixed bag.

Thanks to "successful product innovation, powerful marketing, and an intense focus on guest satisfaction and operational execution," as CEO Nigel Travis put it, Dunkin' delivered adjusted earnings of $0.28 per share on 9% higher revenue year over year. Domestic same-store sales jumped 5.6% with a stronger performance on the Dunkin' Donuts side and smaller (but still positive) same-store growth in Baskin-Robbins locations. Both revenue and earnings came in stronger than analyst expectations.

On the downside, Dunkin' also announced a dilutive secondary stock offering that will add up to 25.3 million shares to the 113 million shares in circulation today. However, none of the proceeds will fall into Dunkin's coffers. Instead, the new shares are being sold by "certain of its stockholders," presumably some of its -- count 'em -- 14 IPO underwriters.

So the lion's share of the offering's cash falls into the lap of Bank of America (NYSE: BAC  ) , Merrill Lynch, Morgan Stanley (NYSE: MS  ) , and the other high-powered megabanks at the head of the table. The financial sector sure could use some extra cash these days, but it doesn't help the company behind the actual stock. Dunkin' can't use the money to build stores, research a better cappuccino, or even pay holiday bonuses to its staff -- it's the usual after-IPO dilution damage with no value for investors.

Considering that very valid reason for the big market hit, I think it's fair to say that investors actually liked Dunkin's reported results. The industrywide drop, then, either shows that investors are nervous about Dunkin' stealing their market share, or else they simply saw the stock drop and applied a swift knee to the groin reaction to other coffee stocks without much thinking.

Peet's report tonight will say more about the state of the coffee industry, followed by Green Mountain and Caribou next week. I'd suggest adding the whole gang of bean bandits to your Foolish watchlist by clicking here. That way, you'll get a taste of every news nugget or analytic delicacy as they pour in.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Bank of America and Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Starbucks, as well as creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. Our disclosure policy prefers single-source Huehuetenango beans at a Light City roast, meticulously prepared in a French press and served absolutely black.


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  • Report this Comment On November 01, 2011, at 4:10 PM, CharlieTav wrote:

    Dunkin Donuts reported that their K-Cup sales were strong. This will be a positive for Green Mountain.

  • Report this Comment On November 01, 2011, at 5:53 PM, CharlieTav wrote:

    Green Mountain earnings will surprise shorts, basis Dunkin Donuts sales of K-Cups. Next Quarter it will be Dunkin Donuts and Starbucks

    as reported this afternoon:

    "Sales at Us Dunkin' Donuts shops, which account for roughly 75 percent of company revenue, got a big boost in the latest quarter from sales of K-cups."

    " Starbucks Corp , the world's biggest coffee chain , will begin selling its own K-cups for Keurig this month."

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