Will Green Mountain Get Roasted?

Where does Green Mountain stand? The company signed five-year contract extension with Starbucks Corp. (NASDAQ: SBUX) in May that covers manufacturing, marketing, distribution, and sales of single-cup packs of Starbucks coffee and Tazo teas for Green Mountain’s Keurig machines. That single deal pushed Green Mountain’s stock up more than 30% to a nearly 2-year high over $80 a share. Green Mountain also licenses its single-serve system to The J.M. Smucker Co. (NYSE: SJM), marketer of Folger’s brand coffees.

As the Barron’s article noted, Green Mountain has told investors that unlicensed products compatible with the company’s Keurig system won’t take more than 5% of sales this year and no more than 15% in two or three years. An independent scanner tracking company reported that 16% of the segment’s sales are now made by unlicensed vendors.

As a percentage of total sales of ground coffee, single-serve packets held a 33% market share at the end of June, according to Barron’s. Of that total, Green Mountain’s share was 43%. Eighteen months ago, single-serve packets held 23% of the total market for ground coffee and Green Mountain grabbed 52% share.

So, yes, the company’s share has fallen, but the total market for single-serve packets has grown. And as this chart from The Wall Street Journal indicates, Green Mountain’s share remained flat at best in the first quarter of this year, but the overall market has started growing again.

Green Mountain reports earnings after markets close on Wednesday. The company is expected to post adjusted earnings per share of $0.77 on revenues of $981.9 million. That’s considerably shy of the first quarter’s EPS of $0.93 on revenues of $1 billion. If Green Mountain beats the consensus estimates, look for short sellers who now hold about 37% of the company’s stock to rethink their position.