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Greenberg: Green Mountain Coffee Gets a Jolt

Friday, 10 Dec 2010 | 11:45 AM ET

There were no "great quarter, guys" on the Green Mountain Roasters earnings call.

AP

And for good reason: It really wasn't. The company beat guidance in the fourth quarter by 2 cents that were generated by a lower tax rate.

But that's only part of the story. Other things that spooked investors:

  • For the first quarter, the company guided to a range of 14 cents to 18 cents a share, which was below street estimates. And remember, it offered up that 4 cent spread even though it only two weeks left in that quarter. And the current quarter is the quarter that presumably included Christmas shipments.
  • Inventories last quarter doubled going into the holiday season. At the same time Green Mountain talked about shortages of its K-cups—somewhat of a disconnect to some observers. And this is a company that in april said it would see a “tsunami” of demand this Christmas.
  • Green Mountain said it would stop providing guidance on K-Cup shipments. Less guidance is almost always a red flag.
  • And on its earnings call and in its 10-K, Green Mountain discussed that in fiscal 2010 it had quality problems with its brewers. (An interesting disclosure at the height of the holiday shopping season.) This led to an increase in returns and the warranty reserve and expense. It says it has made fixes that “we believe have corrected the issue.”

Finally, from the “who knew what when?" file: Before the market closed on November 19, the day Green Mountain announced a lower-than-expected restatement related to accounting issues—news that caused the company’s beleaguered stock to fly higher—75,000 calls traded on its stock.

That’s more than five times normal daily volume. Jon Najarian of Options Monster, who helped analyze this data for me, said on Fast Money last night that it does suggest somebody may have been trading on material non-public information.

  • Watch Herb's Video Report on Green Mountain Here

My take: This aroma still doesn’t pass the sniff test and it won’t until the SEC, which is continuing its accounting investigation, either finds something—or doesn’t.


Watch "Closing Bell" today at 3:30pm ET for a "Bull-Bear" debate about Green Mountain. Is it a buy, sell, or hold? Decide for yourself after hearing what two analysts have to say about the stock.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

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