Market Overview

Green Mountain Coffee Roasters Earnings Preview: Looking for Some Good News

Green Mountain Coffee Roasters (NASDAQ: GMCR), which recently named a new CEO, is scheduled to report its fourth-quarter and full fiscal 2012 results Tuesday, November 27, after the markets close. Investors will be hoping that new partnerships and licensing deals with the likes of Costco (NASDAQ: COST), Dr Pepper Snapple (NYSE: DPS) and Starbucks (NASDAQ: SBUX) will have begun to turn things around since the company's expired K-cup patents have led to fierce and growing competition.

Expectations

Analysts on average predict that Green Mountain will report that revenue grew more than 26 percent year-over-year to $902.23 million. But per-share earnings are expected to come to $0.48 for the quarter, essentially flat with EPS in same period of last year. The consensus EPS estimate has not changed in the past 60 days, and estimates fall in a tight range from $0.46 to $0.49 per share. Green Mountain has offered upside surprises three times in the past six quarters; the earnings beat was by four percent in the third quarter.

Back in the third quarter, Green Mountain revenues fell short of expectations and the company warned of slower growth going forward. The full-year outlook was below consensus estimates. Also, the board approved plans to buy back $200 million in shares over two years. However, the share price rose about 30 percent in the week following the earnings release.

The consensus full year forecast now has EPS more than 27 percent higher year-over-year to $2.24 on revenue that is up about 44 percent to $3.82 billion. That EPS estimate is unchanged in the past 60 days as well.

The Company

Green Mountain Coffee Roasters markets specialty coffee and other beverages, and it is also the manufacturer of Keurig single-cup brewing systems. It has a market capitalization near $4.4 billion, was founded in 1981 and is headquartered in Waterbury, Vermont. The company announced last week that CEO Lawrence Blanford, who has held the title since 2007, will be replaced by Brian Kelley, formerly a top executive with Coca-Cola (NYSE: KO).

Competitors include Farmer Brothers (NYSE: FARM) and Starbucks (NYSE: SBUX). Earlier this month, Farmer Brothers posted a profit for the fiscal first quarter, which ended a streak of three larger-than-expected quarterly net losses. Starbucks beat EPS estimates in its most recent quarter and boosted its full-year outlook.

During the three months that ended in September, Green Mountain was the subject of takeover rumors, introduced "wellness" drinks, appointed a new chief information officer and a new chief logistics officer, and expanded its line of Keurig Vue Brewers.

Performance

The long-term EPS growth forecast is more than 20 percent, and the price-to-earnings (P/E) ratio is lower than the industry average. The company has a return on equity of more than 17 percent but does not offer a dividend. Note that short interest is about 38 percent of the float, the highest it has been this year. Still, half of the 14 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares, while only one recommends selling. Their mean price target signals about 27 percent potential upside.

The stock is down about 40 percent year to date and shares have traded mostly between $20 and $30 since May. The share price is above the 50-day moving average but below the 200-day moving average. However, over the past six months, the stock has outperformed Starbucks and the broader markets.

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