Why Green Mountain Shares Got Roasted

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty coffee company Green Mountain Coffee Roasters (NAS: GMCR) sank a staggering 48% on Thursday after its full-year guidance came in well below Wall Street expectations.

So what: Green Mountain's second-quarter profit jumped a solid 42%, but a highly disappointing full-year outlook is reigniting serious concerns over its growth prospects going forward. Expiring patents and looming high-end brewer competition from Starbucks (NAS: SBUX) have recently raised doubts about its ability to stay at the top, but today's warning suggests that its popularity is already waning much faster than expected.   


Now what: Management now sees 2012 adjusted EPS of $2.40-$2.50 on sales of $3.8 billion-$4.0 billion, well below Wall Street's view of $2.65 and $4.27 billion, respectively. "As we continue to move forward on the adoption curve, we believe we may experience a more moderated growth trajectory for both Keurig brewer and K-Cup pack sales and our revised 2012 estimates reflect as much," said President and CEO Larry Blanford. "However, given the sheer volume of brewers sold, we continue to expect a significant growth in the installed brewer base." So while Green Mountain's fastest growth days might be behind it, Mr. Market might finally be offering its still-respectable future prospects at a discounted price.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of and creating a lurking gator position in Green Mountain, as well as buying shares of and writing covered calls on Starbucks. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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