Green Mountain Coffee Roasters’ (NASDAQ:GMCR) is scheduled to announce its Q3 earnings on 1st August. Last quarter, it reported dismal brewer sales and and restated its sales estimates for 2012. These announcements didn’t go well with investors and its share price plunged more than 40% within a day of the earnings release.
With increasing competition in the single-serve coffee segment, investors and analysts are eagerly awaiting to see its impact on GMCR’s results. It will be interesting to see whether GMCR will be able to achieve its net sales growth target of 20%-25% for this quarter.
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We briefly discuss the key trends that we will be watching in the upcoming quarterly earnings:
K-Cup Portion Packs Sold
Growth in K-Cup portion packs has been the major driver behind GMCR’s growth over the last couple of years. According to our estimates, it contributes about 85% to GMCR’s current stock valuation. However, potential competition from Starbucks (NASDAQ:SBUX) and Wal-Mart (NYSE:WMT) could affect the future dynamics of the single-serve coffee industry. These large firms could leverage their global presence and loyal customer base to grab a share of the growing single-serve market, much to GMCR’s detriment.
We will be interested in knowing management’s plans to counter these competitive threats and its take on future expansion and growth plans for GMCR.
Brewers and Accessories Sold
GMCR has been pushing hard to drive its brewer sales as this, in turn, drives sales of its higher margin K-Cup portion packs. Robust brewer sales is an important determinant of the viability of GMCR’s business as more adoption rates will eventually drive K-Cup sales.
We will be interested to see the growth in the number of brewer sold for this quarter. GMCR, which controls more than three-quarters of the U.S. single-serve coffee market, sold 1.1 million brewers during Q3 2011. However, increasing competition and expiry of two of its key patents could affect its operations adversely.