Being a public company means even the boss has to answer to somebody -- the shareholders. In the past year, Green Mountain Coffee Roasters (Nasdaq: GMCR) has been the subject of much debate. While many have lambasted the company over sketchy accounting practices and unsatisfactory management decisions, those loyal to it cite the incredible growth over the last few years -- especially for a 31-year-old company. Most of the talk has been speculation, with a few more specific arguments from people like famed investor David Einhorn. But in a recent interview with The Wall Street Journal, Green Mountain CEO Larry Blanford answered the difficult questions and tried to explain to shareholders and the public what is going on behind the scenes of the newest kid on the coffee block.
Rumble and a tumble
Only a year ago, Green Mountain was trading for more than $110 per share. Now it trades closer to $30 per share. In the same time, net income has nearly quadrupled, with Keurig coffeemakers and K-Cups popping up in homes and even restaurants. Say what you will about the quality of the coffee, the stuff sells like hotcakes.
But despite attractive growth numbers, things just haven't been good for the company. When Einhorn set Green Mountain in his laser sights, the stock slid to new lows. In May of this year, troubling news emerged when the founder and former chairman, Robert Stiller, sold over $100 million worth of his stock in the company in an attempt to cover a margin call. Stiller had borrowed from his banker while offering shares in Green Mountain as collateral, a practice many large public companies prohibit. A decline in share value resulted in Stiller's banker liquidating Green Mountain shares to restore the collateral level, or "cushion," required by the broker. The sale raised red flags within Green Mountain and led to Stiller's ousting as chairman of the board of directors in May.
Adding to the mix, Green Mountain's faced increasing competition; Starbucks (NYSE: SBUX) has announced that it is entering a very similar space, and even offering its own hardware to go along with it. If there was something that could have gone wrong for a company, with the exception of sales numbers, it happened to Green Mountain. Luckily, for those interested, Blanford and Co. decided to do an interview with the Journal to help shed some light on the company and remove it from investors' blacklist.
Good talk, good talk
Mr. Blanford was, in true CEO fashion, incredibly bullish regarding the future of Green Mountain. He didn't totally address some of the questions asked, but he seemed unwaveringly confident in the future of the company.
As far as the SEC investigation and Einhorn's allegations go, Blanford's comments sounded more like a politician than anything:
Anything like that is immediately turned over to our audit committee and they independently evaluate and review them using outside auditors and legal counsel. There have been no issues found whatsoever. Relative to [Einhorn's] thoughts about the business, certainly there are many investors and they all have differing views on our opportunities. But we're very confident in our business and very confident in the opportunities we have going forward.
What was helpful, though, was the information regarding the future direction of the company, and why Blanford feels Starbucks won't be a direct competitor.
On the future of the company:
We think the Keurig Vue represents the future. Vue has been designed with more flexibility to accommodate a wider range of beverages beyond coffee, including cold beverages. … And we will continue to invest in and expand the Keurig K-Cup platform... We do have another platform that we're getting ready to launch late this year or very early next year in cooperation with Lavazza. It is a single-serve espresso machine with a twist or two that we think will make it very interesting to the consumer.
On Starbucks:
I think their single-serve system is first and foremost an espresso single-serve system. We are solidly in the filtered coffee business. Espresso, while important in certain parts of the world, is a very small part of the North American marketplace.
It's good to see the company moving forward and making an effort to stay disruptive in the beverage industry. Similar to technology, people's tastes move fast and need constant stimulation. If the company fails to remain on the forefront of the at-home-beverage-drinker's mind, things are over.
Addressing shareholders -- always good
I am not as confident that Green Mountain is perfectly insulated from Starbucks' advances. In the coffee giant's history, when it enters a space, it tends to crush it. I also think the CEO could have been more up front about the SEC inquiries and made more definitive statements. That said, though, Blanford did what he needed to do and answered questions while painting a picture of a stable, progressive Green Mountain that should still very much be on the minds of consumers and investors alike. The stock was up nearly 3% in Wednesday's trading session.
For a deeper look into the fundamentals regarding Green Mountain Coffee Roasters, including the opportunities and hurdles the company faces, check out this premium report by one of our top analysts. You'll also get a full year of free updates on the stock as major developments happen. Click here to learn more.
Editor's note: A previous version of this article incorrectly stated that Green Mountain's current CEO, Larry Blanford, sold over $100 million worth of shares in the company in May. It was the founder and former chairman, Robert Stiller, not Blanford, who sold $100 million worth of Green Mountain's stock. We have made the correction to illustrate the context of the stock sale, and we regret the error.
