Will Green Mountain Coffee Roasters, Inc. Earnings Perk Up?

Green Mountain Coffee Roasters (NASDAQ: GMCR  ) will release its quarterly report on Wednesday, and investors have become increasingly optimistic that the coffee-brewer giant has seen its prospects improve over the past quarter. Even though the company has continued to see licensed K-Cup revenue come in from Starbucks (NASDAQ: SBUX  ) , Dunkin' Brands (NASDAQ: DNKN  ) , and other companies seeking to capitalize on the success of the Keurig brewer, Green Mountain faces the challenge of a brewer-upgrade cycle to manage effectively without jeopardizing its leadership position in the industry.

Many analysts believed that the loss of patent protection on its original Keurig K-Cups would lead to massive declines for Green Mountain's sales. So far, though, that hasn't happened to nearly as great an extent as feared, and the coffee maker is taking steps to try to get back that valuable protection going forward with its new product offerings. Will those moves solve Green Mountain's patent problems for years to come? Let's take an early look at what's been happening with Green Mountain Coffee Roasters over the past quarter and what we're likely to see in its report.

Stats on Green Mountain Coffee Roasters

Analyst EPS Estimate

$0.90

Change From Year-Ago EPS

18.4%

Revenue Estimate

$1.40 billion

Change From Year-Ago Revenue

4.9%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How can Green Mountain earnings keep growing?
In recent months, analysts have had mixed views on Green Mountain earnings, cutting their December-quarter estimates by $0.06 per share but boosting their full-year fiscal 2014 projections by about 1%. The stock has climbed back from a drop in mid-2013, rising 23% since late October.

Most of Green Mountain's share-price gains came from its September-quarter earnings report, in which the company demonstrated the staying power of its Keurig and K-Cup combo. For the full 2013 fiscal year, sales of brewer machines rose by about 16%, but perhaps more surprisingly, K-Cup sales jumped by 26%. Even less-than-perfect guidance for the holiday quarter didn't hold the stock back, as shares posted a 14% rise in just a single day.

Looking forward, the big innovation that Green Mountain hopes will provide growth well into the future is the Keurig 2.0. The machine adds the ability to brew more than a single cup of coffee, with K-Carafe technology combined with interactive readability technology that the company hopes will inspire consumers to upgrade. More important, the changes enable Green Mountain to reclaim patent protection over Keurig 2.0 K-Cups, and that will once again give the company more leverage over Starbucks, Dunkin' Brands, and other licensing companies that want to sell to Keurig 2.0 users. That's increasingly important, as Green Mountain's concerns about "difficult brewer and portion pack sales comparisons" for the holiday quarter stood in contrast to strong revenue growth at Starbucks.

But Green Mountain is looking at marketing-savvy ways to bring in customers as well. The K10 MINI Plus brewer has a smaller footprint than Green Mountain's regular Keurig machines, and college-branded decals make their dorm-room target even more obvious to would-be buyers. By locking in a generation of new coffee drinkers early, Green Mountain can set the stage for generations of future sales.

The biggest question, though, is whether customers who already have traditional Keurig machines will bother with upgrades. Because of the licensing fees involved, producers who haven't signed licensing partnerships like the ones Starbucks and Dunkin' still have with Green Mountain can keep making generic K-Cups for the Keurig, but won't be able to produce similar offerings for the Keurig 2.0. If customers respond to the resulting lack of variety by deferring a 2.0 purchase, then it could spell trouble for Green Mountain's strategy.

In the Green Mountain earnings report, watch for the company to give more details on its long-range strategy. With the 2.0 due out later this year, Green Mountain needs to demonstrate resilient sales for brewers and consumables leading up to that rollout.

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