Green Mountain Coffee shares plunge on outlook

Shares of Green Mountain Coffee Roasters Inc. plunged in trading Friday after the company issued a weak outlook. THE SPARK: Green Mountain reported late Thursday that its fourth-quarter results beat expectations but issued disappointing guidance due to rising coffee prices and the cost of launching new products.

The company said it expects adjusted earnings per share of between 14 cents and 18 cents. Analysts had been expecting 20 cents per share. Green Mountain also widened the lower end of its full-year 2011 forecast. It now expects to earn $1.19 to $1.29 per share, down from an earlier estimate of $1.24 to $1.29 per share. Analysts forecast earnings of $1.18 per share.

THE BIG PICTURE: Green Mountain has seen its sales rise as it incorporated the Keurig single-cup coffee business to its lineup. But like many coffee-related businesses, it is struggling with massive increase in coffee bean prices, which remain volatile.

THE ANALYSIS: In addition to the weak guidance, Stifel Nicolaus analyst Mark Astrachan said he is concerned about the company's ability to keep running the business given several distractions, such as a still ongoing regulatory inquiry, numerous class action lawsuits, a pending acquisition and increased competition.

Additionally, he expressed concern in a research note about the company's decision announced Thursday to no longer share shipment guidance for its K-Cup line, further reducing its business transparency. He is concerned that the long-term outlook for these shipments, which are the main earnings driver for the company, may be eroding along with its margins. He maintained "Sell" rating on the company's shares.