Green Mountain Coffee Finishes Strong

The word you're looking for is "pop." Green Mountain Coffee Roasters (NASDAQ: GMCR  ) announced its fourth-quarter and fiscal-year-end results after the market closed last night, and the stock jumped 16% in early trading. The company's strong revenue growth was apparently enough to assuage the fears of investors who were earlier put off by investor David Einhorn's concerns about K-Cup sales. The company also beat out the Street's consensus estimate for earnings, making an impact where it counts.

The year-end at Green Mountain
Green Mountain's model is known as a razor-and-blade model, where the company makes a small percentage on the sale of brewers -- razors -- and then makes a fortune off the sale of the one-time-use K-Cups that go into the base -- blades. This year, the company increased brewer sales by more than 15% while K-Cup unit sales increased 26%. The last quarter was especially strong, with revenue from brewers and K-Cup volumes both increasing at a higher than average rate. All of those increases lead to a 38% increase in net income, with earnings per share rising 43%.

The company also got better at managing its buyers. Over the last three years, as the company continued to sell more and more, it also ended up having larger and larger amounts due out for bad accounts -- deadbeat customers. In 2012, the company ate $3.5 million in debts, which came right out of the bottom line. This year, it only wrote off $553,000 and decided to put a meaningfully smaller amount aside for future bad accounts. The overall financial impact of the change is small, but it represents good management on Green Mountain's end.

The concerns of David Einhorn
While the company is storming ahead, it has yet to pull itself out of the shadow of Einhorn's concerns. Specifically, Einhorn believes that Green Mountain's management team has overstated the number of K-Cups that have been sold. He also believes that the company's user base is smaller than estimated, and that each brewer is slowly consuming fewer and fewer K-Cups.

Green Mountain has yet to meet Einhorn straight on, and that may be in the company's best interest. However, until the issues are addressed, the specter of Einhorn is going to loom large over the business. His comments -- along with a New York Times piece on the sale of K-Cups -- have pulled the stock down more than 20% since the beginning of September, even accounting for today's jump.

Green Mountain's 2014
While Green Mountain had a successful 2013, its forecast for the first quarter of 2014 fell behind analysts' estimates. The market was looking for earnings per share of $0.96, but management said that the internal forecast was for just $0.90.

Green Mountain could still best that forecast and beat out analysts, giving it a solid start to 2014. The company will, at some point, have to get Einhorn off its back or else it's unlikely that it will really be able to pull away. Maybe 2014 will be the year of answers at Green Mountain.

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