The legions of Green Mountain Coffee short-sellers are getting a very big hand this morning.
Greenlight Capital’s David Einhorn is making a negative case against Green Mountain Coffee Roasters (GMCR) at the Value Investing Congress in New York. His presentation is 110 slides long. “I was up late last night.”
The presentation started at 11:40 a.m. and the stock was already down 6% within 90 seconds. Twenty-five minutes into the presentation, shares were off 9%.
Einhorn says GMCR’s financial disclosures are inadequate and constantly changing, “I suspect in response to negative trends,” he said. He added that the company has numerous “accounting discrepancies” and its June quarterly results may be “too good to be true.” He also alleges “shenanigans” with distributor M Block and is urging the SEC to take a look.
“We haven’t talked to the SEC. The SEC’s already been there for more than a year. There’s hope that they might look into this.”
Einhorn says the K-Cups are unreasonably expensive compared to brewed coffee and it seems unlikely that Green Mountain can convince enough consumers that the coffee is so good that the added price is worth it.
Einhorn called the company’s return on capital “merely adequate” and claimed that GMCR is burning cash.
“The capital spending is growing faster than the business at a time when the business� should be growing much faster than the capital spending.”
He also said that the company’s deal with Starbucks (SBUX) to sell Starbucks coffee in GMCR’s K-Cups is not nearly as positive as the bulls seem to think. Starbucks appears to be getting the lion’s share of the profit split on the sale of each K-Cup, Einhorn estimates: “Starbucks should make about 2/3 of the profits.” And sales of the Starbucks packets could cannibalize GMCR’s existing higher-margin sales.
Bulls see normalized GMCR earnings hitting $9 per share, but Einhorn says the more likely figure is $3.50.
“I have a position” in the stock, Einhorn disclaimed, adding that he can change it any time.
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