Green Mountain Coffee Roasters Earnings: What to Watch For

Green Mountain Coffee Roasters reports first-quarter earnings on Wednesday. Bulls and bears will want to watch for an opportunity after earnings are released.

Feb 2, 2014 at 8:30AM

Wall Street analysts expect Green Mountain Coffee Roasters (NASDAQ:GMCR) to hit the high end of management's earnings guidance when it reports fiscal first-quarter earnings on Wednesday. Striking the high end of guidance could reignite traders' confidence in the stock, but long-term investors will be more interested in management's comments about the Keurig 2.0 system.

Expectations
Green Mountain had a solid 2013; it grew revenue 16% to $4.4 billion, and adjusted earnings per share grew 45% to $3.39. The fourth quarter was strong as well: revenue was up 22% and adjusted EPS increased 56% compared to the year-ago quarter.

However, the company's strong 2013 results created a difficult comparable year for Green Mountain to build on; it disappointed investors when it announced guidance for high-single digit revenue growth and 12% adjusted EPS growth for 2014. Moreover, management expects most of that growth to come in the second half of the fiscal year, as last year's first and second quarters were especially strong. Management gave a Q1 adjusted EPS estimate of $0.85 to $0.90, and most analysts expect it to hit the high end of that range -- the consensus estimate compiled by MarketWatch is $0.89.

Bulls and bears
Green Mountain has been a battleground stock ever since hedge fund manager David Einhorn announced he was short the stock due to funky accounting and patent expirations. Although there are plenty of Green Mountain short-sellers, perhaps even more investors are long the stock.

The winner in the epic struggle between bulls and bears will ultimately be decided by Green Mountain's product innovations. The Keurig brewer's outstanding success led to enormous growth for the company; any coffee company that wanted to sell Keurig-compatible portion packs had to pay Green Mountain for the privilege. However, Green Mountain's valuable K-Cup patent expired in 2012, enabling coffee companies to manufacture unlicensed K-Cups.

As of the end of last quarter, management estimates 12% of K-Cups sold through retail channels are unlicensed brands -- meaning they do not touch Green Mountain at all. Although unlicensed brands' share is growing, the more worrying consideration for investors is how much licensed companies like Starbucks and Dunkin' Brands are willing to pay Green Mountain to pack and distribute their coffee. These companies could just as easily partner with any white-label manufacturer to make their K-Cups, so Green Mountain must have offered them generous terms.

Green Mountain has a plan to solve the K-Cup commoditization problem, and, if it works, the shorts will lose their shirts. The next generation of Keurig brewers -- Keurig 2.0 -- will feature interactive-reader technology that only works with Green Mountain's new patented version of the K-Cup. If successful, this could reignite Green Mountain's growth.

To be successful, Keurig 2.0 has to escape a catch-22: The brewer needs a wide selection of compatible products to attract customers, and it needs a lot of customers to attract a wide selection of compatible products. It also needs to be demonstrably better than competing brewers to convince consumers to buy it.

Despite the uphill battle Green Mountain must fight -- against its own Keurig 1.0 brewer, no less -- some investors believe the next-generation brewer will do just fine. The company's partnerships with Starbucks and other major brands, in addition to its widespread name recognition, give it a respectable chance of success. One thing the bulls and bears agree on is this: Green Mountain needs the Keurig 2.0 to succeed.

What to watch for
Investors will know Green Mountain's fate when the Keurig 2.0 brewing system either gains widespread acceptance or it flops. Keep an eye out for unlicensed share, which will probably be mentioned on the conference call. Management is trying to sign up unlicensed brands; if it is successful, then it may have an easier time extending those relationships to provide a wide selection for the Keurig 2.0.

If you have an opinion on whether or not the Keurig 2.0 will take flight, you may be able to take advantage of it after earnings. If you are bullish on Keurig 2.0 and Green Mountain misses estimates, the stock may dip and provide a buying opportunity. If you are more skeptical about Keurig 2.0's prospects -- as I am -- then an earnings beat and subsequent increase in the stock price may provide an opportunity to short the stock.

The important thing to remember is that Green Mountain's future is still in the future. Though the market may be focused on this quarter's earnings, informed investors will use the market's short-sightedness as an opportunity to place a bet on a long-term view.

Growth stocks that are crushing the market
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers