Is Green Mountain Losing Market Share?

Green Mountain Coffee Roasters (NASDAQ:GMCR) is popular for its well-known K-cups, single-serving coffee pods that can be found in homes and offices across the country.  The company has customers such as ConAgra Foods (NYSE:CAG), Starbucks (NASDAQ:SBUX) and Dunkin’ Donuts (NASDAQ:DNKN).  However, the company is losing market share in the coffee industry as more competitors enter the field.

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Bloomberg reports, “The share of coffee dollar sales held by Green Mountain’s single-serve products for the four weeks ended Nov. 27 declined to 8.4 percent, down 0.4 percentage points from the previous four-week period, according to a Bloomberg Industries analysis of data from researcher SymphonyIRI Group.”  The recent decline in market share could just be the beginning of troubles for the company.  Green Mountain faces the loss of patent protection for the K-Cups in 2012, which could damage market share and profits even more.

Green Mountain has tried to discourage competition by partnering with Folgers (NYSE:KFT), and signing deals with Starbucks Corp. and Dunkin’ Brands.  However, analyst Mark Astrachan from Stifel Nicolaus said brewer sales are getting weaker, and sales will take a hit as a result.  He explained, “We believe slowing household penetration of brewers will increasingly pressure K-Cup shipments, reducing the long-term earnings power of the business.”  He also reiterated his “Sell” rating on the stock.

Shares of Green Mountain (NASDAQ:GMCR) have been on a slippery slope.  In October, David Einhorn, president of the activist hedge fund Greenlight Capital, called out the company’s management for failing to adequately address accounting questions.  Einhorn made these remarks in the context of a speech he gave at the Value Investing Congress today, saying, in part that he thought Green Mountain’s latest earnings release was “perhaps to good to be true.”  Since October, shares are down about 45%.  In comparison, shares of Starbucks and Peet’s Coffee & Tea, Inc. (NASDAQ:PEET) have increased 10% and 3.5%, respectively.

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