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Stock To Watch: Green Mountain Shares Plunge, Set New Low After Weak Outlook

 May 03, 2012 02:13 PM

(By Mani) Shares of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) plunged as much as 53 percent and created a new 52-week low, after its third quarter, and full-year outlook fell short of Wall Street forecasts. The stock has lost nearly 50 percent in today's trading session.

Green Mountain Coffee Roasters shares, which has gapped open dramatically lower Thursday morning, have plunged below support and set a new low for the year. The stock is under pressure due to a sales miss, and a weak outlook adds substance to hedge fund manager David Einhorn's criticisms of the company's accounting practices.

[Related -For Maximum Total Return Go For Growth]

For the third quarter, Green Mountain sees adjusted earnings of 48 cents to 53 cents per share, on net sales between $861 million and $897 million. Analysts expected the company to report earnings of 72 cents per share on quarterly revenues of $1.05 billion.

The company also cut its fiscal 2012 earnings outlook to $2.40 to $2.50 per share from $2.55 to $2.65 per share. Total net sales are expected in the range of $3.8 billion to $4.0 billion, or net growth of 45 percent to 50 percent, from $2.7 billion in fiscal year 2011. Previously, it had expected sales growth of 60 to 65 percent. Street is currently looking for full-year 2012 earnings of $2.67 per share, on revenues of $4.27 billion.

The company's second-quarter earnings, however, came in line with expectations at 64 cents a share. Though its $885 million in sales missed Street view of $972 million.

[Related -Green Mountain Coffee Roasters, Inc. (GMCR) Q3 Earnings Preview: Piping Hot Profits?]

Following disappointing guidance, two brokerages have downgraded the stock. SunTrust cut its rating on Green Mountain shares to "neutral" from "buy," and Piper Jaffray downgraded it to "neutral" from "overweight."

The company partially attributed over supply of K-Cup to the lower-than-expected sales and now expects a more moderated growth trajectory going forward for both Keurig brewer and K-Cup pack sale after several quarters of robust adoption.

Green Mountain is the leader in the single-serving coffee market with its popular Keurig, or K-Cup, machines. It was one of the fastest-growing companies and investors' darling returning them 209.5 percent in the last three years. However, the return dropped 26 percent in the last year.

Green Mountain shares have dropped from its highs of $110 in September after David Einhorn's criticisms over the company's growth prospects and accounting practices. In October, Einhorn, who runs Greenlight Capital, questioned the company's accounting of capital expenditures by asking what is being capitalized.

For 2012, Green Mountain sees capital expenditures in the range of $525 million to $575 million, down from a range of $630 million to $700 million.

Accounting issues are not new to Green Mountain as it restated previous financial results In 2010. The Securities and Exchange Commission's enforcement division is conducting an informal inquiry that might lead to further financial restatements.

The company has problems with its balance sheet, especially in inventories. Inventories at the end of the second quarter of 2012 amounted to $602 million, more than double from the $300.8 million reported in the same period last year. The ballooning inventories suggest that the company is not able to sell its products as expected.

Green Mountain shares were also hammered in March after rival Starbucks (NASDAQ:SBUX) said it was going to sell its own single-cup coffee brewer, although it says it will still sell its coffee through Green Mountain's Keurig.

Green Mountain, whose key patents for its K-Cups expire in September, also faces tough competition from Nestle SA, Dunkin' Brands, Inc. (NASDAQ:DNKN), Peet's Coffee & Tea, Inc. (NASDAQ:PEET), and Wal-Mart Stores Inc (NYSE:WMT).

Waterbury, Vermont-based company is also under the scanner due to heavy insider trading by its executives. In February, the company's chairman, Robert Stiller sold 1 million shares when the stock was in the mid-60s.

Now, the shares were trading down $23.56, or 48 percent, at $25.96 after touching a new 52-week low of $24.40. They were down 25 percent in the last three months.



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