Green Mountain (NASDAQ:GMCR) coffee roasters has been riding a growing wave of popularity. Its unique product, ease of use and perceived value have helped it gain market share and improve results. However, the company is facing renewed challenges in 2012. If you are looking for coffee exposure, Green Mountain may not be the best choice. In the following article I will discuss why rivals Starbucks (NASDAQ:SBUX) and Caribou (NASDAQ:CBOU) may offer better rewards.
Green Mountain Coffee Roasters is the maker of one-cup Keurig brew systems and the coffee K-Cup packages that go in them. The ingenious design and ease of use have helped drive Green Mountain to the top of the retail coffee market. The company has been continuing to grow its market presence and profits successfully in 2011. Sales of the brand grew over 100% in the fourth quarter over the same period a year ago. The non-GAAP earnings per share grew by an astounding 230%. Sales were achieved on growing north American consumption and facilitated by strong inventory positions.
Management of the company sees America embracing the convenient single cup system and expect to continue growth in the market. The perceived value of single serve coffee systems is growing in America and accounted for over 50% of consumer dollars spent in coffee makers last year. Sales of brewing systems grew by 75% for Green Mountain in 2011, with a corresponding increase of coffee sales over 115%.
Green Mountain's ongoing profitability will stand on sales of the K-Cups. Eventually, sales of brew systems will slow down and the explosive growth seen in 2011 will cease. Sales of coffee will continue to grow long past that point. The price of green coffee will impact profits, the company had to impose one price increase in 2011. Coffee prices have been steadily rising, with a 20% rise from 2009 to 2010 and a 40% increase in 2011. Unfortunately for Green Mountain, its main patents on the K-Cup run out in September of 2012. At that time, well known brands will have other alternatives. Increased competition from rival coffee brands seriously hurt the future outlook of this company.
The stock is currently trading around $65, recently making an upward swing in prices nearly 25%. The impressive full year report has brought investors back. The company had been trending downward after peaking in September of 2011. A review of last year's press releases comes up with no negative news to account for the downward movement. Third and fourth quarter results are in line and supportive of full year results. Green Mountain is currently valued over 30 times earnings, with a forward looking value around 20.
Starbucks has been trending up since the general market bottom last August. The company is giving investors reason to continue the trend. The company's results in the first quarter of fiscal 2012 set company records in net revenue and earnings per share. The total net revenue for Starbucks increased by 16% to $3.4 billion, driving record earnings of $.50 per share. Comparable store sales growth grew by 9%, with a 7% increase in traffic and a 2% increase in ticket average. Starbucks is attracting new customers and they are spending more than ever. Revenue in Starbucks' consumer products segment grew 72%, primarily on Starbucks branded K-Cup packages and operational changes in 2011. The growing consumer acceptance of self serve coffee will help Starbucks and Green Mountain. Operating income and margin in consumer products grew by 12% each.
Starbucks is currently trading around $47.50 with a P/E ratio around 30. The stock has good support among the institutional community and the dividend yields about 1.5%. Other players in the retail / restaurant sector like Bob Evans (NASDAQ:BOBE) and Ark Restaurant Corp (NASDAQ:ARKR) have better yields and lower multiples. Bob Evans and Ark have both been trending sideways in 2011.
Caribou Coffee Roasters has been trending up for three years-- strongly in 2012-- and looks ready to break out to new highs. Third quarter results for 2011 were released in November of last year, while fourth quarter and full year results are expected in March. Sales in the third quarter increased in three major business segments of the company. Consolidated net sales rose by 16% on increases in coffee house revenue, increases in merchandise including Caribou branded Keurig K-Cups and increased franchise sales. The company sold and opened 24 new franchise locations in 2011, driving the strong growth in the sector. Revenue from coffee house sales grew by 4% in 2011 and sales of commercial products grew by 75%, riding the coattails of Green Mountain's K-Cup.
The stock is currently trading around $17.25, at the top of its one year range, even with all time highs set last year. Price momentum is strong and should carry through any resistance. I expect to see this stock trade around $20 in the near future, and continue to rise through December 2012.
Green Mountain could very well fall to the wayside once its patents run out. Starbucks, Caribou and others will be able to make their own versions, maybe even reusable models. It will be interesting to see how Green Mountain responds to this challenge.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.