Is Green Mountain on the Verge of a Meltdown?

Shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) were in a free-fall after the company missed analysts’ second-quarter revenue expectations. The coffee company’s earnings per share of 64 cents were a penny better than expectations, but its revenue came at $885 million, short of the predicted $972 million. Shares fell 37.2 percent, or $18.32, during after-hours in the minutes after the release of the report.

Green Mountain also cut profit expectations for the full year to $2.50 a share this year, down from an earlier forecast of $2.65.

Green Mountain’s shares had also plunged earlier this year when competitor Starbucks (NASDAQ:SBUX) announced its plans to enter the single-serve coffee market, as of now dominated by the Vermont-based smaller coffee chain. Green Mountain’s patent for its successful K-Cups is also set to expire in September, and chief executive Lawrence Blanford has introduced the Vue coffee machine as his next ploy. Starbucks since agreed to partner with Green Mountain to sell coffee for the Vue brewer, raising hopes.

“Based upon our estimate that our installed base represents a relatively small percentage of the total estimated 90 million U.S. households with a coffee maker, we remain enthusiastic about the long-term opportunity for continued Keurig brewer adoption as well as initial consumer reaction to our recently introduced Vue brewer,” Blanford said in a statement on Wednesday.

While second-quarter net income rose 42 percent to $93 million from $65.4 million, gross margins fell to 35.4 percent in the quarter from 37.5 percent a year ago. The company cited “lower-than-expected” K-cup pack demand, higher coffee costs, and efforts to reduce K-Cup inventories as reasons for lowered margins.