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Dominick Lombardo, CFA
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Dominic Lombardo, FRM received his MBA in Management and Finance, and is certified by the CFA Institute. He later received a diploma (Credit Analysis) from New York University. Dominic had received the Series 7 and 63 certification from FINRA when he was a small-cap analyst and economics editor... More
My company:
Socially Responsible Investing
My blog:
Socially Responsible Investing (SRI)
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  • Takeover Rumors on GMCR (Social Responsible Investing)
    There was a takeover rumor on Green Mountain Coffee Roasters (NASDAQ:GMCR). 
    I've been noticing this frequently these days, especially for stocks that have taken big dips (such as Adobe's rumor of a link w/ Microsoft). 

    I believe these are unfounded, and appear to be manipulation on the part of some wise-guy investors.   The acquirer is rumored to be Nestle who's oozing to expand into the North American market.  My question is, Why would Nestle buy GMCR in the middle of an SEC investigation ?  Just makes no sense.

    Also, there was a great little WSJ article on the coffee industry, particularly the segment which GMCR is focused on (of course, those little pod one-shots.  aka "Single Serve Coffee").  During a lackluster market for coffee, single-serve growth has been phenomenal, doubling to $176.8MM over the last TTM ended 9/5/10.  However, note how small this market is !  Even GMCR needs to acquire companies to perk-up its business.

    Consequently, an acquisition of GMCR would be too small for Nestle.  Nestle is a food company with over $100Bn in revenues (based on a recently released report, translated into USD from Swiss francs).  It's Nespresso business, which is similar to GMCR's Keurig line, has annualized revenues of nearly $3Bn, so an acquisition of GMCR would not make sense at this point as it would be too small.  For comparison, GMCR's revenues annualize to over $1.2Bn, but, but, but, this is acquisition-related (and not all Keurig based revenue).  Also note from GMCR's 10Q that there are large amounts of inter-company revenues, so I'm not confident in that, 87% of revenues are really Keurig-related, as the company claims. Also note that LaVazza now has a 7% ownership stake in GMCR,  likely turning-off any potential buyers.

    Disclosure: Long GMCR
    Oct 14 11:00 PM | Link | 1 Comment
    It's interesting that the SEC is investigating GMCR as it's the poster-boy for
    the perfect SRI investment.  In fact, the company's been highlighted by Business Ethics Magazine several times, including a #1 Ranking in 2006.  It's quite difficult for small companies to make such lists given competition and dominiation from the Fortune 500 (and their heavy ad spending).

    There's been relatively heavy recent Insider Selling and the Balance Sheet fundamentals (i.e., earnings quality potential) has deteriorated sharply.  Free Cash Flow and Tangible Equity are declining and likely to worsen w/ the latest acq.   The real question is: Why has the company gone crazy on the M&A front ?  It would be interesting to hear what they have to say on the earnings call.  (As companies are typically acquisitive or not.).  Will they revert back to their conservative history ?  If not, then maybe they're really trying to hide something.  But I'm ready to give 'em time to explain..

    Disclosure: Long GMCR

    Disclosure: long GMCR
    Sep 29 11:03 PM | Link | Comment!
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