Things have not been going so well for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) lately, and it’s losing the taste for profits. There are many reasons for the decline in profits, including patent expiration, terrible promotions, and new products that just aren’t taking off as they should be. Despite these problems Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s share price still wants to edge higher, going from $45 a share in early February to where it is now at $54 a share in March. So what is causing this rise in stock price? Can it be justified considering all the problems the company faces? Let’s take a close look at the financials and competitors and see just how much value Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) can generate for investors.
As of September 2012 the patents on the K-cup expired, and this didn’t seem to help the bottom line for Green Mountain Coffee. As we know from other corporations, patent expiration is never fun to deal with. There are many competitors who are launching their own K-cup products, and the sad part is that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) receives no royalty payments from these products. The patent expiration kind of forced the company to start doing outrageous promotions just to keep customers buying its K-cup products. One promotion was for an online coupon that allowed customers to take $10 off for any products purchased that were $10 or more. In essence the company was giving away coffee for free just to show more sales and possibly to bring new customers to its brand of products.
New Product to the Rescue
So with the patent expiration problem and having to do a promotion that causes losses in revenue, what can be added to the pipeline of products that will help turn the company around. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has now unveiled the new “Vue V500 Brewing system.” This new product is added to the list of other Kuerig Vue products that combines the Kuerig’s single serve ability with popular customizable features of the Vue system. I think it is good that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is taking the initiative to deal with its patent expiration and slowing sales of its K-cup products. Whether or not this new system will serve investors with future profits remains to be seen, but I think Green Mountain Coffee will have to handle a lot of pressure from its competitors to stay alive in the coffee business.
Profits maintained but outlook Terrible
On Feb. 6, 2013 Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) reported Earnings per Share of $0.76 per share versus analyst estimates of $0.65 per share. Sales were right in line with analysts estimates and the company’s estimate of $1.33 billion dollars. The problem is that it gave weaker guidance for the 2nd quarter of 2013, guiding sales of $1.03 billion dollars versus analyst estimates of $1.06 billion dollars. The company sees guidance for the 2nd quarter of net sales growth to be between 15% and 20%. So the growth here seems to be slowing, which could prove to be disastrous in the coming year of 2013!
Coffee Wars
It seems Starbucks Corporation (NASDAQ:SBUX) isn’t wasting any time on Green Mountain’s Coffee patent expiration. Starbucks Corporation (NASDAQ:SBUX) has had it’s own K-cup product out, and it can be used with the Kuerig brewing system. The difference, though, is that Starbucks Corporation (NASDAQ:SBUX) seems to be having better growth, considering it’s same store sales have been better than competitors growing at 20%. Starbucks Corporation (NASDAQ:SBUX) packs a huge punch with it’s 18,000 stores nationwide, and seems to be a big competitor against Green Mountain Coffee. Starbucks Corporation (NASDAQ:SBUX) is starting to grow bigger as it earned $432.2 million at $0.57 a share compared to last year in 2012, when it earned only $382.1 million, or $0.50 a share.
Bottom Line
Investors should remain cautious on Green Mountain Coffee as its product line doesn’t seem to be making the profits it used to. With growth slowing, patent expirations, terrible promotions, and new products not heating up the market space it seems like Green Mountain Coffee may roast your portfolio instead of boosting it. Starbucks seems like a promising competitor, and if Green Mountain Coffee doesn’t find a way to boost its growth again or get people excited for it’s new “Vue V500 brewing system,” then earnings won’t go well next quarter for the company.
The article Green Mountain Coffee is Losing its Taste! originally appeared on Fool.com and is written by Terry Chrisomalis.
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