Climbing Green Mountain

Green Mountain Coffee Roasters (NASDAQ:GMCR) may hit the top of the charts when it comes to being a good corporate citizen, but even the most socially responsible investors need to pay attention to how such a company's business performs.

In the third quarter, Green Mountain Coffee reported profit down 9% at $2 million, or $0.25 per share. (Not only is it lower on a year-over-year basis, but it's flat on a sequential basis if you revisit last quarter's numbers.) The results include the company's recent acquisition of Keurig, which makes single-cup coffee brewing systems for home and office. Furthermore, the quarter includes an $0.08 per-share loss as a result of its equity investments in Keurig before the acquisition closed, as well as a $0.02 per share in amortization expense. Green Mountain's sales increased 26.5% to $47.8 million.

Although the company's profits dipped from this time last year, Green Mountain did beat analysts' expectations. However, the company forecast fiscal year 2006 earnings of $0.97 to $1.02 per share, far less than the consensus estimate, which called for earnings of $1.19 per share. On the other hand, its fiscal 2007 forecast remained on par with estimates, at around $1.51 to $1.56 per share, which would be 30% earnings growth.

There are definitely some interesting elements to Green Mountain's business. It's all too tempting to compare this company to Starbucks (NASDAQ:SBUX) and Caribou (NASDAQ:CBOU), but it's not quite the same -- it doesn't provide its wares through its own retail coffeehouses like those rivals do. Instead, it provides its coffee to restaurants, grocery stores, and corporate clients, as well as directly to consumers. On the other hand, Peet's (NASDAQ:PEET) distributes its coffee in a similar manner (although it does have 111 retail stores).

Furthermore, Green Mountain has retail partnerships with companies like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), as well as an agreement to provide coffee through some McDonald's (NYSE:MCD) stores.

Green Mountain's attention to corporate responsibility issues is renowned; it made Business Ethics' list of Best Corporate Citizens last spring (and thus positioned itself as a stock with scruples). It recently announced an eco-friendly coffee cup developed in conjunction with International Paper, a development that likely hit Starbucks' radar, since Starbucks also seeks to push its environmentally friendly profile. It's no secret that green tinge is attractive marketing these days, and Green Mountain's definitely got that down.

Despite the fact that I find Green Mountain interesting, and there are signs of momentum (for example, impressive increases in consumer revenue and sales of its Fair Trade coffee), there are a few reasons not to rush things right now. For example, it's too early to know how successful its $104 million acquisition of Keurig will be, and investors should watch to see if that new subsidiary will provide a decent return on investment. While the two companies are a good fit, not every acquisition is a successful one, and only time (and information on post-acquisition cash flows) will tell.

Although there are reasons to suspect growth on the horizon, investors might want to bide their time -- and keep an eye on progress -- before climbing this Green Mountain.

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Alyce Lomax owns shares of Starbucks, but no shares of the other companies mentioned. The Fool has a disclosure policy.