Green Mountain: Over $300 Or Under $10? The Next Few Weeks Are Key [View article]
Very good article Derek, thanks for sharing your research.
I agree the near-term direction is unclear, and that longer-term the sales/earnings numbers will take share price to the appropriate level. You make an interesting case for the price range, though my personal estimates are a bit more constrained than yours. Short of a broad market collapse, I would be surprised to see GMCR drop below book value, currently above $15 per share.
Green Mountain Coffee Roasters Q1 2013 Earnings Recap [View article]
Nice work as always, Seth! Thanks for sharing your research and opinions.
One thing that I noticed on the earnings call yesterday was a significant change of "tone." Brian Kelly seems to be leaning forward on branding and efficiency, as well as some unspecified future endeavors. This seemed to be a sharp contrast with previous CEO Larry Blanford, who seemed to be somewhat "stuck in a rut."
Green Mountain Coffee Roasters Q1 2013 Earning Preview [View article]
Very good article Seth! Thanks for sharing your research.
Do you think that as the company phases in the lower-priced Vue brewers, they will phase out the lower-end K-Cup brewers? That seems a possible way to encourage the transition to the new system.
Jeff, that is certainly possible. I would be more optimistic, though, if the existing long-term joint venture with UCC had been more active over the past decade.
Jeff, based on the Canaccord briefing that I linked to, "Company estimates and study conducted by The Cambridge Group on behalf of the Company." I think additional brewers will have a lower attachment rate, but not because the "big coffee drinkers came first." Rather, I think a lot of the machines are second machines for the same household. For example, adding a machine for your desk at work will probably increase the total number of K-Cups consumed, but probably lower the average number consumed on a per-brewer basis.
I would guess the soda cartridges would be cheaper for a couple reasons. First, manufacturing should be cheaper without the need for filters and (probably) nitrogen packing. Second, there is no real commodity involved, other than sugar.
Sydney, I really don't have any insight into the SEC inquiry, other than it seems to have been going on forever with no actions to date. You would think if there was something seriously wrong, that (1) they would have found it pretty quickly, and (2) would have upgraded the inquiry to an investigation.
My previous calls to GMCR regarding patent questions resulted in no interesting revelations. Not sure what you mean by "disposable" CO2. Rather, it is consumable CO2. Which has been around since the days of Fizzies http://www.fizzies.com.
I am sure that every one who reads the patent is very curious about just how mature this technology is. No way to know until they decide to tell us, I guess.
Thanks for the kind words. I am sure there are a lot of engineering hurdles associated with a dual machine. Fixing the issue they mention might be as simple as reducing the amount of plastic that the beverage traverses after leaving the cup. With the current K-Cup system, there is quite a bit of surface area touched by the beverages below the lower piercing point.
Thank you Seth. I would tend to agree with your assessment, except that this is by far the most complex patent that GMCR has ever filed. Some of the 90 claims seem to imply that they have tried some of these things out.
One thing about the carbonated beverage patent is kind of interesting. Most of GMCR's stable of patents are assigned to Keurig, Inc. Even the ones that were filed after the acquisition was completed by GMCR. But this one was assigned to Green Mountain Coffee Roasters. I didn't even see it in my normal "canned" search at the government patent web site - someone posted about it on the ProBoards GMCR site http://bit.ly/H3x0AU Maybe not significant, but it almost seemed like they were "hiding" this filing.
What The Green Mountain Coffee Investor Should Know [View article]
Based on extrapolating trends that GMCR published with their last earnings call, brewer growth for this quarter will probably be in the 10-20% range. Until they publish sales numbers, any estimate you or I make will be, by definition, based on incomplete data.
The biggest problem with your article is that you seem to be implying that zero growth in brewer sales would be some sort of a disaster. In fact, zero growth in brewers implies very strong earnings growth.
Wait, how can this be?
Well, GMCR sells the brewers roughly at cost, so those sales really don't help the bottom line. The K-Cups, however, are where the money is made. You have to remember, though, that the brewers are DURABLE goods, while the K-Cups are CONSUMABLE goods.
Based on GMCR's estimate of 11.5M brewers in service in March, there are probably about 14M in service right now. Of these, about 8.5M were sold in the past year. That is a staggering statistic, and critical to understanding why zero brewer sales growth is not a bad thing.
What would zero brewer growth mean for next year? Well, assume the 2008 brewers all need to be replaced, since GMCR estimates the brewers have a useful life of 5 years. That would be just under 1M brewers, so there would be a net gain of 7.5M new brewers on counters in the US. Which would mean an increase in the installed brewer base of over 50%. That is not a typo - ZERO BREWER SALES GROWTH FOR NEXT YEAR WOULD INCREASE THE INSTALLED BASE OF BREWERS BY OVER 50%!
Assume that each brewer consumes the same number of K-Cups per day, and you get an increase in the profitable K-Cup sales of 50%. So why doesn't GMCR estimate a 50% growth in earnings next year? They are undoubtedly factoring in pricing pressure from competition, and conservatively assuming they will not prevail in their court cases. And some of the brewers will be second brewers in the same consumer unit, which would have lower attachment rates. If they win their infringement case against Sturm next month, I would expect GMCR to raise their FY13 estimates significantly.
Green Mountain: Over $300 Or Under $10? The Next Few Weeks Are Key [View article]
I agree the near-term direction is unclear, and that longer-term the sales/earnings numbers will take share price to the appropriate level. You make an interesting case for the price range, though my personal estimates are a bit more constrained than yours. Short of a broad market collapse, I would be surprised to see GMCR drop below book value, currently above $15 per share.
Green Mountain Coffee Roasters Q1 2013 Earnings Recap [View article]
One thing that I noticed on the earnings call yesterday was a significant change of "tone." Brian Kelly seems to be leaning forward on branding and efficiency, as well as some unspecified future endeavors. This seemed to be a sharp contrast with previous CEO Larry Blanford, who seemed to be somewhat "stuck in a rut."
Green Mountain Coffee Roasters Q1 2013 Earning Preview [View article]
Do you think that as the company phases in the lower-priced Vue brewers, they will phase out the lower-end K-Cup brewers? That seems a possible way to encourage the transition to the new system.
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
Green Mountain Coffee Roasters 3.0 [View article]
One thing about the carbonated beverage patent is kind of interesting. Most of GMCR's stable of patents are assigned to Keurig, Inc. Even the ones that were filed after the acquisition was completed by GMCR. But this one was assigned to Green Mountain Coffee Roasters. I didn't even see it in my normal "canned" search at the government patent web site - someone posted about it on the ProBoards GMCR site http://bit.ly/H3x0AU Maybe not significant, but it almost seemed like they were "hiding" this filing.
What The Green Mountain Coffee Investor Should Know [View article]
The biggest problem with your article is that you seem to be implying that zero growth in brewer sales would be some sort of a disaster. In fact, zero growth in brewers implies very strong earnings growth.
Wait, how can this be?
Well, GMCR sells the brewers roughly at cost, so those sales really don't help the bottom line. The K-Cups, however, are where the money is made. You have to remember, though, that the brewers are DURABLE goods, while the K-Cups are CONSUMABLE goods.
Based on GMCR's estimate of 11.5M brewers in service in March, there are probably about 14M in service right now. Of these, about 8.5M were sold in the past year. That is a staggering statistic, and critical to understanding why zero brewer sales growth is not a bad thing.
What would zero brewer growth mean for next year? Well, assume the 2008 brewers all need to be replaced, since GMCR estimates the brewers have a useful life of 5 years. That would be just under 1M brewers, so there would be a net gain of 7.5M new brewers on counters in the US. Which would mean an increase in the installed brewer base of over 50%. That is not a typo - ZERO BREWER SALES GROWTH FOR NEXT YEAR WOULD INCREASE THE INSTALLED BASE OF BREWERS BY OVER 50%!
Assume that each brewer consumes the same number of K-Cups per day, and you get an increase in the profitable K-Cup sales of 50%. So why doesn't GMCR estimate a 50% growth in earnings next year? They are undoubtedly factoring in pricing pressure from competition, and conservatively assuming they will not prevail in their court cases. And some of the brewers will be second brewers in the same consumer unit, which would have lower attachment rates. If they win their infringement case against Sturm next month, I would expect GMCR to raise their FY13 estimates significantly.
Oh, and you mis-spelled "wily."