Here’s Why Green Mountain’s Cup is Half Empty

Several coffee stocks have been boiling hot this year. Shares of Starbucks Corp. (NASDAQ:SBUX) have gained 23 percent year-to-date, while Dunkin’ Brands Group Inc. (NASDAQ:DNKN) shares have perked up more than 30 percent. However, not every caffeinated company is receiving a boost.

When it comes to Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), investors are clearly viewing the cup as half empty. Shares of the Vermont-based company woke investors up Thursday morning by crashing nearly 50 percent on the back of a dismal outlook. Net income increased 42 percent from the year earlier quarter, but the future earnings have investors scrambling for the exits. “As we continue to move forward on the adoption curve, we believe we may experience a more moderated growth trajectory for both Keurig brewer and K-Cup pack sales and our revised 2012 estimates reflect as much,” explained Green Mountain CEO Larry Blanford.

The company now expects to earn $2.40 to $2.50 per share for its full fiscal year on revenue of $3.8 billion to $4 billion. That is below previous estimates of $2.55 to $2.65 per share on revenue over $4.2 billion. For the current quarter, Green Mountain expects adjusted net income to come in between 48 cents and 53 cents per share, well below estimates of 71 cents per share by analysts.

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To add insult to injury, Blanford blamed part of the second-quarter letdown on the weather. “We also had lower than anticipated portion pack sales in the quarter. We think that the unseasonably warm weather experienced in many parts of the U.S. adversely affected sales of our seasonal beverages such as hot cocoa and hot apple cider. While our sales of seasonal varieties were up over last year, they were not up to the extent we anticipated,” he explained on the earnings conference call. Considering how Starbucks CEO Howard Schultz responded to warmer weather, Green Mountain would not satisfy our ‘A-Level Management Runs the Company’ variable in the CHEAT SHEET investing framework.

Last week, Starbucks reported second-quarter earnings of 40 cents per share, beating estimates by 1 cent. Net income for the coffee giant increased 18.5 percent to $309.9 million, compared to $261.6 million a year earlier. Although shares dipped on the  narrow earnings beat, Schultz did not make excuses on the weather. He said, “In all due respect, we do not allow weather to enter the equation of Starbucks comp store sales internally. And we’re certainly not going to allow it to enter the conversation publicly. We are going to succeed in good and bad weather. I don’t think the weather had any significant impact on comps.”

While it may be tempting to consider Green Mountain shares after such an extreme sell-off, there are other companies such as Starbucks and Dunkin’ that offer exposure to the coffee industry with more solid earnings and less doubt on the outlook. Late Thursday, Caribou Coffee Co. (NASDAQ:CBOU) also sat down at Green Mountain’s table by cutting its 2012 sales forecast amid slowing growth in the single-serve K-Cup market. In fact, Caribou even used the dreaded “moderation in its growth trajectory” phrase in the earnings statement.

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