David Einhorn made headlines by pointing out accounting irregulaties in GreenMountain’s financial statements, and changing of disclosures. Full notes are here-http://www.valuewalk.com/value-investing-congress-2/david-einhorn-qa/. He specifically called into question SunTrust, which had a $9 EPS projection for GreenMountain. GreenMountain fired back, and bits and pieces are floating around the internet, a friend sent me the full document. Below are some of the brief points of the rebutal, followed by SunTrust’s full rebuttal of David Einhorn, and David Einhorn’s original short presentation.
(This is not the first time that David Einhorn has had his short thesis attacked. His short call on St. Joe continues to be challenged by the largest shareholder, Bruce Berkowitz).
“His (David Einhorn’s) $3.50 estimate is based on two differing inputs vs. our analysis: (1) the profit per cup to GMCR; and (2) the assumption of non?licensed k?cups sold in the mix.”
“The problem lies in the investor’s math.”
“Based on [original] slide he indicated that the total potential profit to share (i.e. split 2/3 to 1/3) is $0.22/k?cup.”
“However, his analysis includes the assumption that BOTH companies will be paying $0.15/k?cup for packaging when, in fact, SBUX is paying GMCR for the packaging services.”
“If we eliminate this double?count and assume that the cost of packaging is closer to $0.04?$0.05 per k?cup (based on prior statements by GMCR), the total profit to split is closer to $0.33/cup.”
“If we then say that GMCR only takes a 1/3 of that profit per cup it would equate to $0.11.”
“Before leaving this item, we point out that, in our opinion, SBUX needed the GMCR partnership.”
“The second major driver of his $3.50 estimate is the assumption that non?licensed private label cups will account for 20% of the total k?cups sold.”
“First, there are NO beverage categories outside of water and milk in which private label consists of 20% of the market.”
“That means it would take at least a 10?standard deviation move to get to 20%; statistically impossible in the next five years.”
“We continue to recommend the shares of TreeHouse Foods … however, we believe 5% of the market would be a best?case scenario and it could take years before it reaches that level.”
Below are the full presentations, and readers can vote; Einhorn or SunTrust:
David Einhorn’s Presentation: