GMCR Hopes to Improve Poor Credibility with New Forecasting Method

GMCR Hopes to Improve Poor Credibility with New Forecasting Method
By Keurig Green Mountain, Inc. [Public domain], via Wikimedia Commons

GMCR Hopes to Improve Poor Credibility with New Forecasting Method

It looks like Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) regained the confidence of some investors, after implementing a new forecasting method. The company reported better-than-expected quarterly earnings and a more realistic forecast compared with report earlier in the year indicating an overly estimated demand for its products collapsing investor confidence, and  stock value to almost 50 percent.

The company reported its earnings after the trading on Wednesday, and posted $869.2 million, lower than the $873.5 million expectation of the 11 analysts surveyed by S&P Capital IQ. Its 47 cents earnings per share was also lower than the 48 cents per share average forecasts by analysts, while its gross margin was 34.9 percent, 190 basis points poorer than the previous year. The company also lowered its earnings outlook next year to $2.21 from $2.26 per share, which is lower than analysts’ average estimate of $2.97.

PIMCO’s Johnson, GMO’s LeGraw and DWS’ Rudy at Morningstar on how to hedge inflation

InflationInflation has been a big focus of Wall Street in recent months, and it won't go away any time soon. But where do we stand with inflation? Has it peaked, or will it continue higher? Q2 2021 hedge fund letters, conferences and more Nic Johnson of PIMCO, Catherine LeGraw of GMO, and Evan Rudy of Read More

Before implementing its new forecasting method, David Einhorn accused the coffee company of using “interesting accounting methods.”  Einhorn was not alone in his observation.  The Long Short Trader also presented detailed information regarding its abnormal accounting practices of the company. LST noted that GMCR’s sales figures during the second quarter and third quarter of 2011 defiled the “sanctity of math.”

LST also issued a memo to Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) after the company refused to answer questions regarding irregularities in accounting. The LST memo cited the company’s stock dropped significantly because of the impression that “management is clueless and not in control, it has done a poor job in explaining itself to investors.”  In addition, LST pointed out that it is necessary for GMCR’s management to practice clear communication and to improve its management credibility.

Furthermore, the coffee makers’ capital expenditures were also questionable. The company kept pouring money in capital expenses, every year however, there were no improvements in its manufacturing operations. The company’s FY2011 10-K report and its May 2, 2012 investor presentation were inconsistent.

The current third quarter report of GMCR shocked many analysts, considering the company’s history is reporting overestimated earnings. The general question was, “Is that true?” Others reacted with the question, “Is this a joke?”

Reuters quoted Anton Brenner of Roth Capital Markets’ reaction to GMCR’s second quarter report saying, “Do you think the stock has corrected sufficiently to reflect a reduction in growth from 40 percent to 15 percent?  If so, at 6.9 times fiscal 2013 estimated EPS and 3.9 times EBITDA (earnings before interest, taxes, depreciation and amortization), the shares are compelling.”

Lawrence Blanford, chief executive officer of the Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) explained in an interview with Reuters, that the company used a new and improved forecasting method. He said, “Hopefully we were able to build confidence with the analysts that we have done our homework and that the outlook we provided … that we can in fact deliver that.”

The company’s stock value went up by 26 percent to $22.66 per share, after trading hours on Thursday.

Updated on

No posts to display