Coffee Maker Needs Some Sugar

Joel Anderson |

David Einhorn, coffee, short, accounting, earnings, quarterly, report, hedge fund, K-cup, Keurig, Green Mountain Coffee Roasters, Greenlight CapitalGreen Mountain Coffee Roasters (GMCR), the maker of popular K-cup portion packets and Keurig Single Cup Brewers, saw its stock crater, losing almost 40 percent on heavy volume after its Q4 earnings missed estimates. The news must have had David Einhorn, manager of hedge fund Greenlight Captial (GLRE), dancing in the streets as Green Mountain has been a battleground stock ever since Einhorn publicly announced that he was short on it while criticizing their accounting practices.

Q4 Earnings Miss Expectations

Green Mountain reported fourth quarter revenues of $711.9 million, a year-over-year increase of 91 percent. Fourth quarter profits were $75.4 million, or $0.49 per share, up from $27 million, or $0.20 a share one year earlier. However, these gains were still less than analyst expectations, which predicted quarterly revenues to exceed $760 million. The revenue miss had to be taken in the context of the ongoing war over Green Mountain shares being waged by David Einhorn. The hedge fund manager, who became famous for his short of Lehman Brothers (LEHMQ) in 2008, has been vocal in his issues with Green Mountain's share price. In a 110 slide PowerPoint presentation he began showcasing in October, Einhorn laid out what he believed to be serious issues with the Vermont-based company's opportunities for future growth while highlighting unresolved accounting issues that lead to an ongoing SEC investigation.

Green Mountain CEO Lawrence Blanford finally broke his silence on the accusations about the company's accounting practices, saying during the company's earnings report conference call that, "Those who know this Company and the individuals that come together to make our success possible; know how much we value integrity and respect. Though disappointing, we take the recent allegations of misconduct seriously. Our audit committee has reviewed the allegations and we are confident there is no misconduct. There is no wrongdoing. We understand that with success comes scrutiny and at times, skepticism. Ultimately, our best response is continuing to run our business with the utmost of integrity, focusing on driving a sustainable and successful business model."

Blanford attributed the lower-than-expected growth in revenue to slow wholesale orders as retailers may have stocked up ahead of a June price increase, and he expressed optimism about the future as Green Mountain expands its brand portfolio, announcing deals earlier this year with Starbucks Corp. (SBUX) and Dunkin' Brands Group, Inc. (DNKN) to sell branded versions of their coffee products for the Keurig Machine. However, the earnings miss, viewed in light of Einhorn's public statements and the lengthy silence from Green Mountain, sparked a massive sell-off, nearly halving shares and marking a 65.5 percent drop from the 52 week high of $115.98 per share.

Coffee Holdings Also Hurt

Also brought down by Green Mountain's earnings miss were shares in Coffee Holding Co., Inc. (JVA), a wholesale coffee roaster who counts Green Mountain as one of their biggest customers. Shares plunged nearly 12 percent on the bad news from Green Mountain. Also losing value was Farmer Brothers Co. (FARM), which dropped over 4 percent after the release of its Q1 earnings report.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FARM Farmer Brothers Company 36.37 0.00 0.00 0
GLRE Greenlight Reinsurance Ltd. 20.13 0.00 0.00 0
GMCR Keurig Green Mountain Inc n/a n/a n/a 0
JVA Coffee Holding Co. Inc. 5.47 0.00 0.00 0
SBUX Starbucks Corporation 53.98 0.00 0.00 994

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