By Michael Lewis
September 20, 2012
Being a public company
means even the boss has to answer to somebody -- the shareholders. In the past
year, Green Mountain Coffee Roasters (Nasdaq: GMCR )
has been the subject of much debate. While many have lambasted the company over
sketchy accounting practices and unsatisfactory management decisions, those
loyal to it cite the incredible growth over the last few years -- especially
for a 31-year-old company. Most of the talk has been speculation, with a few
more specific arguments from people like famed investor David Einhorn. But in a
recent interview with The Wall Street Journal, Green Mountain CEO
Larry Blanford answered the difficult questions and tried to explain to
shareholders and the public what is going on behind the scenes of the newest
kid on the coffee block.
Rumble and a tumble
Only a year ago, Green
Mountain was trading for more than $110 per share. Now it trades closer to $30
per share. In the same time, net income has nearly quadrupled, with Keurig
coffeemakers and K-Cups popping up in homes and even restaurants. Say what you will
about the quality of the coffee, the stuff sells like hotcakes.
But despite attractive
growth numbers, things just haven't been good for the company. When Einhorn set
Green Mountain in his laser sights, the stock slid to new lows. In May of this
year, Blanford sold over $100 million worth of his stock in the company,
prompting neon red flags and a major sell-off. Competitor Starbucks (NYSE: SBUX )
announced that it is entering a very similar space, and even offering its own
hardware to go along with it. If there was something that could have gone wrong
for a company, with the exception of sales numbers, it happened to Green
Mountain. Luckily, for those interested, Blanford and Co. decided to do an
interview with the Journal to help shed some light on the
company and remove it from investors' blacklist.
Good talk, good talk
Mr. Blanford was, in
true CEO fashion, incredibly bullish regarding the future of Green Mountain. He
didn't totally address some of the questions asked, but he seemed unwaveringly
confident in the future of the company.
As far as the SEC
investigation and Einhorn's allegations go, Blanford's comments sounded more
like a politician than anything:
Anything like that is immediately turned over
to our audit committee and they independently evaluate and review them using outside
auditors and legal counsel. There have been no issues found whatsoever.
Relative to [Einhorn's] thoughts about the business, certainly there are many
investors and they all have differing views on our opportunities. But we're
very confident in our business and very confident in the opportunities we have
going forward.
What was helpful,
though, was the information regarding the future direction of the company, and
why Blanford feels Starbucks won't be a direct competitor.
On the future of the
company:
We think the Keurig Vue represents the future.
Vue has been designed with more flexibility to accommodate a wider range of
beverages beyond coffee, including cold beverages. … And we will continue to
invest in and expand the Keurig K-Cup platform... We do have another platform
that we're getting ready to launch late this year or very early next year in
cooperation with Lavazza. It is a single-serve espresso machine with a twist or
two that we think will make it very interesting to the consumer.
On Starbucks:
I think their single-serve system is first and
foremost an espresso single-serve system. We are solidly in the filtered coffee
business. Espresso, while important in certain parts of the world, is a very
small part of the North American marketplace.
It's good to see the
company moving forward and making an effort to stay disruptive in the beverage
industry. Similar to technology, people's tastes move fast and need constant
stimulation. If the company fails to remain on the forefront of the
at-home-beverage-drinker's mind, things are over.
Addressing
shareholders -- always good
I am not as confident
that Green Mountain is perfectly insulated from Starbucks' advances. In the
coffee giant's history, when it enters a space, it tends to crush it. I also
think the CEO could have been more up front about the SEC inquiries and made
more definitive statements. That said, though, Blanford did what he needed to
do and answered questions while painting a picture of a stable, progressive
Green Mountain that should still very much be on the minds of consumers and
investors alike. The stock was up nearly 3% in Wednesday's trading session.
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