(By Fred Dunsel ) Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) closed at $25.10 last Friday, marking a 47.6% drop for the week. The stock dramatically fell by 48% last Thursday, after Wall Street expressed its loss of confidence when the company cut its outlook and missed sales estimates again. This was the company's lowest point in about two years, compared to a lifetime high of $115.98 only last September. Its earnings announcement last week gave credence to critics who alleged that the company had been inflating sales and that its high-growth figures were no longer sustainable.
Contrary to analysts' expectations of earning $2.65 a share on $4.27 billion in revenue, the company announced that it expected to earn $2.40-$2.50 a share on revenue of $3.8-$4 billion. Green Mountain also said that it expects its adjusted net income for its current quarter to be between 48-53 cents per share, compared to analysts' expectations of 71 cents a share.
Greenlight Capital Inc.'s analyst David Einhorn had been questioning the company's accounting practices and the impact of the imminent expiry of two patents this September. Stifel Nicolaus analyst Mark Astrachan believed that Green Mountain would lose market share once its key K-Cup patents expire in September. Astrachan wrote that this would "negatively impact the company's long-term earnings power." It also didn't help that Green Mountain had a long-standing inquiry by the Securities Exchange Commission on some of its accounting practices, though its spokesperson reiterated last Thursday that the company complied with generally accepted accounting principles.
During last week's conference call, Green Mountain CEO Larry Blanford struggled to explain why demand was far below expectations. Blanford also acknowledged that it was getting more difficult to measure demand as the company added new partners and sellers. The company also attributed the poor sales of hot cocoa and cider in the previous quarter to warm weather.
Given its current spate of problems and increasing competition in the single-serve sector from Nestle SA and Starbucks, analysts believe that Green Mountain, which was once the industry darling, will need to review its corporate strategy quickly. While its growth had been impressive thus far, investor sentiments towards the company will only continue to cool if it fails to live up to expectations.