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More Bad News for Green Mountain Coffee Roasters

By John Maxfield – Updated Apr 7, 2017 at 12:50PM

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Starbucks goes after Green Mountain.

The bad news just keeps rolling in for Green Mountain Coffee Roasters (Nasdaq: GMCR). It was announced yesterday that Starbucks (Nasdaq: SBUX) has officially entered the single-cup coffee machine business with the release of its Verismo.  According to Starbucks executive Jeff Hansberry:

The size of the premium single cup market is approximately $8 billion globally, having grown more than 143 percent over last year in the U.S. alone. With more than one out of three brewers sold last year being a single cup machine, this is more than a trend.

The machine will be available at "select high-end specialty retailers" this October, just in time for the holiday season. It will come in a variety of colors and at two different price points, $199 and $399, with the more expensive version featuring an LED display and temperature control.

The news couldn't come at a worse time for Green Mountain. The company's shares have been skewered since hedge fund manager David Einhorn, known for his prescient calls on Lehman Brothers and Allied Capital, the latter memorialized in his book Fooling Some of the People All of the Time, took aim at its capital spending and lack of transparency last October. Since then, the SEC has initiated an investigation of its accounting practices, and questioned whether the expiration of its K-Cup patents will have a "material impact" on its financial results.

Mounting a counterattack, Green Mountain's chief executive officer said in an interview earlier this week with The Wall Street Journal that it plans to roll-out a single-service espresso machine with a "twist or two." As my colleague Rick Munarriz noted, there is no shortage of espresso makers on the market -- including ones by Nestle and Kraft (Nasdaq: KFT). It thus remains to be seen whether the twists alluded to will be enough to separate Green Mountain's machine from the crowd.

While shares of Green Mountain are down nearly 40% on the year, they've recently mounted a comeback. As of Wednesday, they stood nearly 27% higher for the month of September. Since Starbucks' announcement, however, they've dropped, falling nearly 10% yesterday and nearly another 4% today.

Is Green Mountain's recent pain your gain?
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Fool contributor John Maxfield does not have a financial interest in any of the companies mentioned above. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Starbucks. Motley Fool newsletter services have recommended writing covered calls on Starbucks and creating a bear put spread position in Green Mountain Coffee Roasters. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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