Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), the maker of Keurig single-serve brewers and capsules, claimed the No. 45 spot on the IBTimes 1000 list by catering to consumers' needs while operating on a high-margin business model.
The IBTimes 1000 is a list of the 1,000 fastest growing, publicly traded companies in the world, gauged by their compound average growth rate over three years, from 2009 to 2011.
The Waterbury, Vermont-based company has enjoyed a three-year compound annual growth rate of 74 percent, making it the fastest growing player in the consumer staples sector. Green Mountain has more than two-thirds of market share in the U.S. single-serve beverages market.
New Vue Platform
With two of the main patents on K-cups set to expire in September, Green Mountain recently unveiled its higher-end next generation Keurig brewer, Vue, to offset competition from copycat versions.
Bank of America Merrill Lynch analyst Bryan D. Spillane pointed out in a note to client that if Vue is well received by consumers, it could moderate the potential ill effects from patent expiration of K-cups. He assigned Buy rating on the stock with a target price of $70 a share.
K-cup coffee pods have helped Green Mountain become the largest player in the over $1 billion U.S. single-serve coffee market. The two expiring patents protect the technology that maintains a precise amount of coffee in each pod and the way to extract the liquid.
Chief Executive Officer Lawrence Blanford remains confident, saying on a Nov. 9 conference call that sales will rise as much as 65 percent in fiscal 2012 after rising 95 percent in the prior year, seven times faster than the average S&P 500 company.
GMCR has positioned itself well to lead the rapid growth of the U.S. single-serve coffee market and is in the early stage of penetrating the broader non-carbonated beverage market, Akshay S. Jagdale, an analyst with KeyBanc Capital Markets, wrote in a Feb. 22 research note.
The newly launched brewer has additional features that could adjust water pressure, timing and airflow to brew different ways and also includes separate dairy frother packs for adding foam.
Vue machine is aiming to target a more affluent demographic and refill cups will cost about 11 percent more than K-cups. Given the fact that Green Mountain has already been earning high margins on each K-cup coffee it sells for about 70 cents.
The secret behind Green Mountain's rapid growth story is its adoption of the Procter & Gamble Co.'s razor and razor blade business model. The company barely turns a profit on its brewers, but makes money on the refill packs, which only work with Keurig machines.
It all started from a cup of good coffee.
Back in 1980, Green Mountain's founder and former Chief Executive Officer Bob Stiller decided to buy into a coffee shop in Waitsfield, Vermont after being served a great cup of coffee. The company was founded a year later as a small café that served premium coffee.
It soon began distributing coffee to restaurants, supermarkets, convenience stores and specialty food stores primarily in the northeastern U.S. In 1993, Green Mountain went public at $10 a share.
The company benefited from the growth in the specialty coffee segment of the coffee industry during the 1990s and its revenue grew at an annualized rate of 25 percent from 1991 to 2000. Green Mountain got into the single-serve business in 2002 when it acquired 42 percent of Keurig Inc., a maker of coffee brewing machines. Four years later, it bought the rest of Keurig.
In Dutch, Keurig means excellence.
During the 2008 economic downturn, Green Mountain was able to post triple digit earnings even when other companies were being hammered.
In its most recent earnings release, Green Mountain reported 2012 fiscal first quarter revenue of $1,158 million, up 102 percent over $574 million generated in the year-ago period. Approximately 90 percent of all net sales during this period were from sales of Keurig related products.
Consumer's awareness of single-cup brewing system has increased to 73 percent in 2011 from 55 percent in 2007, according to data released by the National Coffee Association. Moreover, the report also showed that 86 percent of coffee consumers drink their coffee at home.
Benefiting from the shift in consumer habit, Green Mountain has sold over 13 million single-serve brewers and over 9 million K-cups. About 96 percent of Keurig brewers shipped in fiscal 2010 were sold to the At-Home channel.
Stocks plunged 60 percent last October after hedge fund manager David Einhorn recommended shorting Green Mountain's stock due to concerns over the company's accounting. Einhorn is known for successfully betting against Allied Capital and publicly shorting Lehnman Brothers before its infamous collapse.
A short seller makes money by borrowing and selling shares at current market value, hoping to buy them back later at a lower price, and pockets the difference.
As of February 15, the latest data available, about 14.5 percent of Green Mountain's investors are short sellers. That's down from the 19 percent short interest recorded in November following an earnings' miss. The decrease in short positions indicates positive investor sentiment.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) rebounded in 2012 but closed down 0.74 percent to $65.94 a share in Tuesday's trading. So far this year, the stock has gained 47 percent in value. However, it's still valued at almost a 40 percent discount to its September peak level.