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Despite 40% Plunge, Pro Remains Short Green Mountain

Wednesday, 2 May 2012 | 7:24 PM ET

Investors sent Green Mountain tumbling in extended trade, - to the tune of 40% lower - but top hedge fund manager Whitney Tilson tells us he doesn’t plan to cover anytime soon.

The catalyst was earnings.

Green Mountain slashed its full-year sales forecast after demand for its K-Cup coffee refills fell well short of Wall Street expectations.

But despite the sell-off, Tilson remains a seller.

He thinks the company is facing both competitive problems and accounting problems. “I can’t prove it but that’s my belief,” he says.

First, Tilson believes rising competition is taking a bite out of sales. "And they haven't even come off patent yet. That's coming later this year."

And second, he adds, “Although I can't prove it, I believe they were stealing sales from futures quarters to make their numbers look extra good. But when you do that, those future quarters eventually catch up."

Tilson goes on to say, "I think we’ll see a series of big misses by the company. I've been short since the high 80's but I'm not interested in covering a single share.”

Tilson on Green Mountain Slide
Whitney Tilson, T2 Partners explains why his company is short Green Mountain and discusses where he thinks the stock is headed.

If you’re looking for a long idea, trader Pete Najarian suggests looking at Starbucks. “Know what I read into this? Starbucks is out there taking share away – I like this stock. I think it’s too cheap. I’m long.”

Looking at the numbers from Green Mountain, gross margins in the second quarter declined to 35.4 percent from 37.5 percent in the year-ago period.

The company reported a second-quarter profit of $93.3 million, or 58 cents a share, compared with $65.8 million, or 44 cents a share, a year ago.

Net sales rose 37 percent to $885.1 million, but missed estimates of $971.7 million, according to Thomson Reuters I/B/E/S.

Green Mountain sees fiscal 2012 sales rising 45 percent to 50 percent, much lower than its previous forecast of a rise of 60 percent to 65 percent.

* Whitney Tilson's next Value Investing Congress is scheduled for May 6th and 7th. Click here for more details.



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Trader disclosure: On May 2, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Dan Nathan is long AAPL JAN 450 PUTS; Dan Nathan is long BAC MAY 7 PUTS; Dan Nathan is long MS MAY 16/14/12 PUT FLY; Dan Nathan is long RIMM JAN 20/25 CALL SPREAD; Dan Nathan is long CHK MAY 16 PUTS; Karen Finerman is long AAPL; Karen Finerman is SHORT AAPL CALLS; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long RIMM CALLS; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDY; Brian Kelly is long IWM; Brian Kelly is long QQQ; Brian Kelly is long SPY; Brian Kelly is long KRE; Brian Kelly is long USG; Brian Kelly is long CAD DOLLAR; Brian Kelly is short SWEDISH KRONE; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long MS; Pete Najarian is long INTC; Pete Najarian is long INTC CALLS; Pete Najarian is long YHOO; Pete Najarian is long INTC ; Pete Najarian is long INTC CALLS; Pete Najarian is long YHOO; Pete Najarian is long SBUX; Pete Najarian is long SBUX CALLS; Pete Najarian is long PEP; Pete Najarian is long INTC; Pete Najarian is long FIO; Pete Najarian is long VISA CALLS; Pete Najarian is long STX CALLS; Pete Najarian is long MS; Pete Najarian is long MS CALLS; Pete Najarian is long TJX CALLS; Pete Najarian is long XCO CALLS

For Randall Kroszner
Nothing to disclose

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