Transcript:
Chris Hill: When you look at the consumer-goods space in 2013, what are a CEO or two that you think are really on the hot seat?
Austin Smith: This is interesting. I'm going to pull two CEOs from similar industries, for very different reasons. I'm going to pull Green Mountain Coffee Roasters' Brian Kelly, and Starbucks' Howard Schultz.
Chris: Wow.
Austin: Now, that may seem interesting because Schultz has been an incredible operator thus far, but we'll start off with Green Mountain Coffee Roasters.
Chris: OK.
Austin: Brian Kelly is coming in. He's coming over from Coca-Cola and he's got a fat pay package, which was kind of interesting because Green Mountain Coffee Roasters was criticized for Larry Blanford's pay package as the company was crumbling.
I think that's very interesting, so he already sort of has -- I'm not going to say a black mark, but when you're getting a pay package this big, and your board was recently criticized for hefty pay packages, you'd better deliver. This is a company that needs a turnaround, right?
Now, they've got a little wind in their back; over the last three months I think they're up 60%, which is amazing, but they're still down 15% for the year, and significantly more since grim reaper David Einhorn came out and called them out.
Chris: Right.
Austin: This has been a company that's on a very, very rocky ride. They've had a lot of bruises with management. Their founder had to leave the board after an untimely call went bad and he had to sell a lot of his shares in a restricted period -- among other things, accounting issues ...
Getting a new guy at the helm on this rocky company is something investors have been waiting for, and the stakes are big, and I think he's got a lot to deliver on, so that's one guy I'm going to be watching.
I'm also going to be watching Schultz, and this is interesting because this guy has been a phenomenal operator, brought Starbucks to what it is today, from the ashes. They basically brought it to be this phoenix, incredible icon in corporate America.
But they've gone on an acquisition tear recently. We're looking at the La Boulange Bakery, kind of going to align them more with a Panera. They've got their energy-drink expansion, which is going to put them in a little bit of competition with Monster Beverage. Their Teavana acquisition. They're adding alcohol to some of their locations, and the list goes on. They also have their CPG division, and they're going with their Verismo Brewer.
Chris: Yup.
Austin: This is a company that's doing a lot of things, and what got Starbucks from the ashes to where they are today was focus on one thing -- an incredible retail experience, and Schultz will be the first one to tell you that.
But they're recognizing that they may not have as much room to continue expanding that at the same rates, so they have to try a lot of different things now and they run the risk of becoming unfocused.
Now, I think Schultz is an incredible operator, and it's not to say that I think that he can't do it in 2013, but this is going to be, for me at least, a proving year. Can he maintain that focus across six disciplines instead of just one? Because that is what you're going to have to do to be able to justify this 30 times earnings multiple we're seeing.
I'm really interested to see how both of those guys execute.
Chris: I'm a Starbucks shareholder, so I'm interested as well, because, among other things, in addition to everything you just said, Starbucks also has all of these ... what I consider to be somewhat aggressive growth targets, in terms of their location count.
Austin: Very aggressive.
Chris: Looking to add thousands of new locations over the next few years. It just seems like it's going to be ... not impossible to pull off, but it's going to be tough to pull off.
Austin: Right. Right, absolutely, and you know one of the things you never want to do as an investor is let CEOs rest on their laurels. Schultz is, in my opinion, one of the best CEOs we've seen over the last few years, but there are still big headwinds ahead, and this is going to be a more difficult next three years than the last three.
