Green Mountain Turns Earnings Into Mud Bath, Shares Off 37%

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) has reported its earnings and the report is not looking pretty. Second quarter sales were up 37% at $885.1 million and its earnings came to $0.64 EPS.  Thomson Reuters had estimates of $0.64 EPS and $971.65 million.  Green Mountain’s report is plagued with lower margins, higher coffee costs, higher labor costs, under-utilization of its current manufacturing base, a writedown on finished products and raw materials inventory, and slower seasonal and ‘certain coffee products’ sales.

The company said that its own surveys generate estimates that its U.S. Keurig Single Cup Brewer installed base has increased to between 10.8 and 12.2 million brewers in use in households as of March 2012.  Cash and cash equivalents rose to $146.0 million at March 24, 2012 from $33.7 million at March 26, 2011.

Total net sales for 2012 are expected to be 45% to 50% higher than 2011 to $3.8 billion to $4.0 billion; earnings are now put at $2.40 to $2.50 per share versus estimates of $2.67 EPS and $4.27 billion in sales.

Shares closed down 0.4% at $49.52 today, but the after-hours reaction is down an awful 37% at $31.13 in active trading after its stock reopened from a trading halt.  The prior 52-week trading range was $39.42 to $115.98.

Frankly, some of these figures look so bad that it required double-checking just to make sure that the estimates and comparable earnings reports were on the right company.

Herb Greenberg on CNBC has been pointing out the caution and controversy in this company for months and months.  Today’s news is not going to cause Greenberg and other skeptics from deciding to warm up to the name.

The numbers are bad enough here that it may make some wonder about the partnership with Starbucks Corporation (NASDAQ: SBUX), for better or worse and for right or wrong.  Starbucks closed up 0.4% at $57.92 and shares are indicated slightly lower (less than 1%) in light after-hours trading volume.

JON C. OGG