Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) is seeing a bear raid after its earnings.  It is one of those bear raids that is for good reason.  Shares had recovered from the post-disclosure lows considerably, but yesterday’s earnings report and disclosure policy combined are creating a management credibility issue.

Green Mountain did manage to beat earnings expectations with earnings of about $27 million or $0.20 actual EPS with adjusted earnings at $0.22 EPS.  That was up from $0.11 EPS a year earlier.  Revenue was up 73% at $373.1 million, with gains seen from the Keurig single-cup sales.  Thomson Reuters had estimates of $0.20 EPS and $359.2 million in revenues.

The outlook leaves room for improvement and the company blamed rising coffee prices and higher product launch expenses.  For the next quarter it sees adjusted earnings of $0.14 to $0.18 EPS, down from consensus targets of $0.20 EPS.  Green Mountain also signaled a less-robust 2011 with estimates of $1.19 to $1.29 EPS compared to previous forecasts of $1.24 to $1.29 EPS.  Thomson Reuters had estimates of $1.18 EPS.

Not all is bad though.  Selling, general and administrative expense as a percentage of net sales for the quarter was 19.2% versus 20.4% in the prior year.  Analysts may worry about a huge rise in accounts receivables of 88% and an increase in inventories of 99%.  That is due to the new business.  The company is still proceeding with its previously announced acquisition of Van Houtte.

Here is where credibility issues arise.  The release noted, “prior estimate issued on July 28, 2010 of total K-Cup portion packs shipped system-wide to increase in the range of 64% to 68% in 2011 is not being updated and, therefore, investors should not rely on it.”

Going forward, Green Mountain will not provide estimates regarding brewers or K-Cup portion packs shipped.  It said it “may” comment on general shipment trends of both K-Cup portion packs and brewers when material to an understanding of its financial results. Green Mountain said that it will continue to provide historical net sales data for K-Cup portion packs and brewers, which you would expect.

What the company is facing is a growth and maturity issue now that it is becoming so large.  Management grew the company rapidly, but those accounting issues may not be entirely resolved.  Not offering core business guidance is an issue when analysts and investors are still trying to get a handle on this company’s growth model, sales trends, and the total market opportunity.  It has had a premium valuation as well.

Shares just opened at $32.57 for a drop of more than 12% and almost 2 million shares had traded hands right at the open when you include pre-market trading.  The short interest is massive in the stock and that was listed as a whopping 26,654,521 shares short as of the November 30 settlement date.  That was a high for 2010 in the short interest.

Where the story gets interesting is in forward valuations.  The acquisitions and deals make a simple apples-to-apple comparison a bit difficult.  That is particularly the case when you have credibility issues on top of shortcomings.  If you just use the low point at $1.19 EPS for forward earnings, the new lower price here of $32.57 gives a forward earnings multiple of about 27-times expected earnings.  Not cheap, but we are talking about a major growth story.

The big issue is going to come in 2011 when the accounting issues and the 2012 story becomes more clear.  If the company can regain credibility and maintain high growth, the shares can improve.  If not, then there is more room to fall.

JON C. OGG

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