The release of earnings and subsequent drop of Dunkin’ Donuts (DNKN) and Peet’s Coffee (PEET) shares today called attention to the change in attitudes toward coffee stocks. Shares of coffee companies were at a boil earlier in the year, led by Green Mountain Coffee Roasters (GMCR), but they have since cooled significantly, across the board. Shares of Green Mountain, undeniably the most buzzed about stock in its category, are now around 40 percent off their teetering highs of $116 and there seems to be a fear that they will continue to decline in spite of their blockbuster sales and earnings.
Other coffee companies have also fallen as higher prices of beans are expected to bite into bottom lines. While it’s obvious the cost is higher, the extreme share shedding seems to be more the result of speculation on how it will impact shares rather than any obvious than legitimate predictions. Strong growth trajectories, namely at Green Mountain Coffee could help oversold shares recovery. At other major names, successful forays into single-cup sales could help them make a comeback while others still are entering into emerging markets that are just beginning the and single cup coffee are enough to leverage some of these companies higher.
Dunkin’ Donuts (DNKN) lost a massive 7.5 percent during the session yesterday in spite of announcing earnings and revenue expectations ahead of Wall Street expectations on Monday. While net income for DNKN fell as the company worked to pay down its debt and repay fees to the private-equity firms that helped it go public earlier in the year, revenues for were actually up. Revenue added around 9 percent though no one would know it judging by the harsh investor reaction. While some of it could be due to the fact that DNKN will have to contend with the IPO payments for some time, the fact is that its coffee business, especially sales of its single-cup for Keurig continue to grow are likely to help the company regain some lost value.
Peet’s Coffee (PEET) Peet’s may not be as strong of a bet as Dunkin Donuts. While it beat earnings expectations, Peet’s guidance was underwhelming and on the lower end of expectations. Peet’s cited the higher price of coffee as the reason behind the sagging projections and to this particular company, the influence that would have over its business is extreme. Unlike its competitors PEET is lacking in growth opportunities. While it could continue to expand its 192 retail outfits, it has no plan to do so and thus fewer opportunities to negate rising costs with new business. Additionally, the company still remains near its 52-week highs while other strong options have fallen sharply.
Green Mountain Coffee Roasters (GMCR)-Shares of Green Mountain have endured a recent round of domino selling. The shares were certainly overpriced but the fear that they would continue to correct led many investors to exit with whatever profits they could take. For many, while their exit prices were well off highs, those profits were still significant. In the last year, shares have vacillated from $29 to $116, leaving plenty of room for early investors to safely exit with a profit.
Among the concerns were that two major K-cup patents are expiring next year, but the company is not entering that new terrain unarmed. Green Mountain has captured its two largest biggest K-Cup suppliers and developed a second-generation Keurig brewer in order to continue to generate new growth. Additionally, the company has made deals with major names from Starbucks to Caribou that can offer loyal customers who will continue to purchase the K-Cup branded versions of their beans. For these reason, and the fact the company intends to work to gain popularity outside of its primary demographic, the east coast, there’s plenty of room for Green Mountain to grow.
One issue that does need addressing with this company; however, is the looming accusation of accounting fraud. Nothing has been determined yet and proof could cause major set backs for the company. If it turns out the accounting is legitimate though, that could be a major boon for shareprices.
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