Green Mountain Coffee (GMCR) got clipped in after hours following its earnings release Wednesday, February 6. The report included a slightly weaker-than-analyst-expectations outlook for fiscal Q2 sales of around 4% below consensus, but an EPS outlook inline with estimates. EPS beat by a wide margin of .11 per share coming in at .76 per share versus a .65 estimate. While there's always a risk of worse setbacks or new emerging competition, the sell-off seems way over done. Here's five reasons to be bullish on GMCR.
1. Guidance for 2013
Slightly lower sales outlook for Q2 should almost be irrelevant if not entirely irrelevant when considering that full year guidance was indeed inline with estimates. The overall fiscal year should play a larger role in investor valuation than a single quarter. Furthermore, did anybody bother to do the algebra? With full year inline and Q2 below forecasts, that means the 2nd half of the year has to be actually ABOVE consensus estimates. Furthermore, factoring in the impact of share repurchases, guidance for the full year EPS actually got raised .08 to a range of $2.72 to $2.84 per share.
2. Records Across the Board
Analyst estimates or not, GMCR has record sales, record EPS, record margins, and record cash flow for fiscal Q1 2013 following a record full year 2012. You would be hard pressed to find somebody who doesn't see an encore for fiscal 2013 and 2014 with more impressive growth on all metrics.
3. Wild Card In Conference Call
Buried in the Q&A section of the conference call, CEO Brian Kelley confessed that while all sorts of efficiencies are being worked on to increase profit margins, none of them have been factored into the guidance:
"Well, we have not factored in any of those into 2013 numbers. Any of those operating improvements. Can some of them happen faster than others? Yes. I wouldn't give you any specific timing yet. We'll begin immediately on them."
GMCR has been quite aggressive in repurchasing shares in the open market:
Under its Board-authorized two-year $500 million share repurchase program, the Company repurchased 4.3 million shares in the first quarter of fiscal 2013 and 3.1 million shares in the fourth quarter of fiscal 2012 for a total of 7.4 million shares at a cost of $175 million to date.
Aside from the slight increased open market buying pressure this causes, it shows management confidence in the immediate future and at these prices. Also the sheer amount of shares bought back in the last two quarters equals around a 5% reduction in the outstanding causing an automatic 5% bump up in the EPS. Future purchases which are ongoing will only raise the EPS further. Management guidance excludes the impact of any future shares repurchases.
Sales and earnings aren't the only thing at extraordinary levels. The short interest and short ratio continue to be at large levels. Last reported short interest was over 31 million with a short ratio of 8.4. Some of this huge short position may take advantage of the dip and volume to cover before GMCR has a chance to bounce and rally again. A short ratio this high adds to the possibility of a future short squeeze especially if analysts start to upgrade GMCR as they digest the results.