Green Mountain’s Growth Story Is Over: Greenberg

With its first-quarter earnings release, Green Mountain’s days as a growth story are officially over.


CEO Lawrence Blanford said as much in the company’s press release when he commented, “After several quarters of robust adoption, we now expect a more moderated growth trajectory going forward for both Keurig brewer and K-Cup pack sales.”

“Moderated growth trajectory going forward” is not what you want to hear form a growth company.

Also very un-growth-like is a slide in margins, but with Green Mountain it’s several of the reasons it cited for the slide: An under-utilization of its current manufacturing base and a higher write down of finished product due to lower-than-anticipated sales of seasonal “and certain coffee products.”

Green Mountain shares fell sharply in after-hours trading Wednesday after the company reported earnings of 64 cents a share on revenue of $885 million — the consensus called for earnings of 64 cents a share on revenue of $972 million, according to Thomson Reuters. (Click here for the latest after-hours quote.)

All of this comes on the heels of a rash of insider selling and the curious timing of the sale of shares in February by partner Lavazza, the Italian coffee company, which supposedly has been working with Green Mountain on a single-serve espresso machine. At the time, Lavazza blamed its sale on “global economic issues.” As I previously reported, Lavazza’s share sale occurred just prior to the Starbucks announcement.

The slowdown also showed up in the quarter in which Green Mountain rolled out its new, pricey Vue machine—an effort to keep sales elevated in the face of expiring patents on the company’s Keurig K-Cups.

And this is all happening before the actual patent expiration, which bears believe will cause margins to fall even further as rivals flood the market with K-Cups, driving down prices even further.

My take: No wonder the bulls, often so chatty before earnings based on channel checks, were silent in recent weeks. In retrospect, it was the ultimate tell.

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