Stock Watch: Keep an Eye on Green Mountain for New Analyst Coverage

Notable Calls — the New York-based blog devoted to stock market news — told investors Thursday to keep an eye on shares of Green Mountain Coffee Roasters (NASDAQ:GMCR), tweeting that the stock was “setting up to be a battleground.” In particular, the blog said to expect a flurry of new analyst coverage.

Shares of the coffee company began dropping after it released its fiscal first quarter results after the market closed on Wednesday. The stock dropped more than 9 percent in after-hours trading, and on Thursday morning shares were down 5.6 percent at $46.20 per share just before noon.

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Investors were not put off by the Vermont-based company’s reported profit, which rose 3 percent from the year-ago quarter, but its predictions for future growth were concerning. Green Mountain forecast downbeat sales growth for the current quarter.

“For the remainder of the year, we expect to see continued year-over-year gross-margin improvement due to lower green-coffee costs and ongoing brewer quality improvements,” said Chief Executive Brian P. Kelley in the earnings release. This analysis from the head of the company sounded promising, but he added that growth would slow in its key coffee and espresso maker category…
A primary cause of this expected slowdown is the rising competition from Starbucks (NASDAQ:SBUX). When some of Green Mountain’s patents expired on its Keurig single-serve coffee brewer last year, its rival launched the Verismo, its espresso-based coffee maker, and a cheaper version of Green Mountain’s K-cup coffee pods. Because the company has faced significant challenges as of late, analysts had hoped to see an indication of increasing momentum in the quarterly report and confirmation that the competition was not as intense as previously feared. But that was not the case.

The company — whose main business is the sale of Keurig machines and the K-Cups that go with them — predicted that sales will increase in the next quarter between 14 percent and 18 percent compared to the the second fiscal quarter of 2012. What concerned analysts, and therefore investors, was that this estimate would result in second-quarter sales of $1.01 billion to $1.04 billion, missing analysts own expectation of $1.06 billion.

Even though the first quarter’s results beat analysts’ predictions, judging from the falling stock price, investors had been expecting a stronger beat. Green Mountain reported that profit rose to $107.6 million, or 70 cents per share, from $104.4 million, or 66 cents per share, in the same quarter last year. Sales rose 15.6 percent to $1.34 billion. For comparison, analysts had expected the company to earn 65 cents per share on a revenue of $1.33 billion.

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