Green Mountain Coffee Roasters (NAS: GMCR) shares got absolutely slammed today as the company missed earnings estimates and as changes in consumers' wholesale buying habits shifted.
Shares are down 34% on the news after hours, effectively erasing more than $3 billion in market value overnight.
This may be surprising to some observers, as revenue was up more than 90%. But ultimately, Green Mountain missed estimates, falling short by almost $50 million.
This is another blow to Green Mountain after having had its shares pretty effectively wrecked by David Einhorn after he called out potential accounting shenanigans at the company. I agree with Einhorn and have said so in the past. There are big question marks looming in the future of Green Mountain's K-Cup patents, which are set to expire. I also believe it has an expensive spending habit. It consistently turns out negative free cash flow, and its upcoming plan to expand its Vermont operations and grow the workforce by as much as 30% only underlines my point.
One key takeaway is that Green Mountain overestimated K-Cup sales, which may be discouraging for recent partnerships it made with Starbucks (NAS: SBUX) , and existing K-Cup partners such as Dunkin' Brands (NAS: DNKN) and Caribou Coffee (NAS: CBOU) . Many people, both inside and outside these companies, saw K-Cups as huge potential revenue streams and may have generously padded expectations about future sales based on this notion. To see K-Cup sales slipping isn't very comforting.
It is important to note that net income per share, at $0.47, was still more than double last year's figure, so the company is growing, but I believe expectations were overshot for so long that they are just now coming back to Earth.
Foolish final thoughts
This company is a falling knife, so don't try catching it anytime soon. Green Mountain may have a bright future, but with so many question marks and a stock price that's acting like it has an anchor attached to it, I'd stay away and let the dust settle.
At the time thisarticle was published Austin Smith owns no shares of the companies mentioned here, but consistently spills their products on his shirts. The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain Coffee Roasters and Starbucks and creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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