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Is The Caffeine Rush Over? The Post Green Mountain 8-K Hangover
As concerns over Green Mountain, well, mount, here are the first two sellside responses following last night's GMCR 8-K announcement of an SEC inquiry into its "revenue recognition practices and the Company’s relationship with one of its fulfillment vendors."
From Bryan Spillane of BofA (Maintain Underperform and $30 PO):
While details of the SEC inquiry are unclear, key points to consider are: 1) Keurig’s largest order fulfillment company is MBlock & Sons, which processes the majority sales (coffee makers and K-cups) that the Keurig segment makes through the retail channel (e.g. Bed Bath & Beyond, Kohls, etc.). M. Block warehouses the physical inventory, takes the customer orders, ships the product and collects receivables, essentially working as an outsourcing partner for GMCR; 2) In FY09, M.Block accounted for 35.2% of total GMCR sales and 51% of accounts receivables; 3) In our view, the use of a fulfillment company to process orders is not unusual (M. Block also has an arrangement with Tassimo, Nestle, etc) however Green Mountain’s proportion of sales flowing through a fulfillment entity has increased because of its rapid growth. This makes it difficult to use financial statements to make a clean assessment on the relationship between GMCR retail sell in and consumer pull. It does not however, suggest to us anything inappropriate. We do note that retail channel checks and third party data suggest that consumer pull through for Keurig Machines and K-Cups are strong.
From Mark S. Astrachan (Sell, No Price Target)
In an 8-K after the close, Green Mountain Coffee Roasters announced an SEC inquiry concerning certain of the company’s revenue recognition practices and the relationship with one of its fulfillment vendors. Separately, the company disclosed an intercompany accounting error that resulted in an overstatement of net income. We believe the two disclosures are unrelated and view the SEC inquiry as the most concerning. Green Mountain said it is cooperating with the inquiry.
Specifically, we believe the focus of the inquiry will be on various revenue recognition changes made by the company in recent years and on its relationship with M-Block, the fulfillment company Green Mountain sells Keurig brewers and K-Cups to for re-sale to select retailers. M-Block accounted for 35% and 50% of the company’s net sales and accounts receivable, respectively, in F2009. Specifically, Green Mountain has changed revenue recognition policies in recent years relating to sales incentives (i.e., recorded as a reduction of revenue or as an SG&A expense) and when revenue is recognized (i.e., upon shipment or customer receipt). For more on the relationship between Green Mountain and M-Block and recent revenue recognition changes, please see our November 30, 2009 note, “Takeaways from the 10K”.
Notably, Green Mountain disclosed the SEC inquiry in connection with its acquisition of Van Houtte and the marketing of the associated $1.35 billion debt financing. While the merger agreement with Van Houtte has not been filed, we believe the presence of a material adverse change (MAC) clause could enable the lenders or Littlejohn to back out of the agreement. Relatedly, Green Mountain announced it completed its $250 million share sale to Lavazza. We are unsure if Lavazza was notified of the investigation prior to the deal’s closing and/or what, if any, legal recourse the company may have as a result.
Further, GMCR’s fiscal year ends in September. As such, the company’s auditors, PricewaterhouseCoopers, will need to thoroughly examine and have confidence in Green Mountain’s results before signing off on their validity, in our view.
As we see more reports, we will advise readers.
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Well, after consuming my usual morning cup of Green Mountain coffee, I suggest this sucker will be taken down just as quickly as it was taken up.
Bottoms up!
Now if only the rest of the market would follow.
I just cant believe the SEC found time apart from their busy porn surfing and solitaire tournaments to actualy do an investigation on someones trading practices! Whats the REAL story here hmmmm someone must have peed in someones Cap'n Crunch.
They didn't, something tells me they had other influences like the DEA helping them connect the dots.
Besides, everyone knows that corporations are immune to the SEC.
Yup, every knows. But everyone should know why, meaning the mechanism that allows corporations to be immune from the SEC. Here's a peek inside.
http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily
Intelligence Czar Can Waive SEC Rules
Now, the White House's top spymaster can cite national security to exempt businesses from reporting requirements.
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.
The bean counters have a problem? This will leave a bitter taste in investors mouths. The problems will keep percolating out. I can go on...
Please do, I am dripping with anticipation.
Trouble is brewing.
Pun threads should be grounds for severe punishment.
PUNishment? Here's mud in your eye!
I wish there was some way to filter comments.
Coffee investors feel jittery.
There are a latte reasons why.
The company watered down the truth?
My cup runneth over.
So wake up and . . .
No comment.
Green Moutain frapped up.
This whole thread has been Grande.
It was really the best part of waking up...
The stock price sanka instantly after the news came out.
It kona gone any other way.
But it had been grinding higher.
Again, no comment.
I wish I could espresso how awesome that was.
This is a latte crap.
You'll get roasted for that one.
You put him on ice.
No, they just keep grinding on like bad jokes at a celebrity roast.
Ouch--I've bean there!
"an SEC inquiry"?
What is an "an SEC inquiry"?
We have an SEC?
SEC inquiry == googling for porn.
xxx +bonus -fraud
Revenue recognition is always the trip wire...especially in this instance. Im no CPA but you cannot ANYMORE just call your local CFO and tell him to put X amount of income in this quarter cause the CEO shot off his mouth promising the sun and the moon to investors...
Tricky!
Green Mountain should have called BDO. :>)
To quote that BDO commercial of two executives walking through an airport terminal.
"That revenue recognition piece is gonna be a bear."
http://www.bdo.com/
http://www.youtube.com/watch?v=yycS1pZ-uj8
Well, I am a CPA and you can call the CFO and goose the top numbers (a little bit, once or twice).
It's just when you have to goose them a lot ... that's when the trouble starts because you have to keep doing it, and doing it and it gets bigger and bigger and bigger ... see Lehman, Enron, Krispy Kreme et al.
Window dressing is one thing ... channel stuffing is another.
And CEOs don't care just as long as they hit those bonus bogies and it keeps the board off their back.
It's the 'story' that sells, not the facts.
Every once in a while, I wish (it's a dream I know), that the 'elite' would open up their blinds and look out the window ... it's a different world out there.
Sell the (illegal) sizzle, not the (boring and legal) steak.
Back when I was a young pup Controller, a wise old CFO told me "Art, a good Controller always keeps one drawer full of debits and another one full of credits". For you non-accountants out there, this means "always have some unbooked transactions available at the end of the quarter that you can pull out of your *&# just before the books are closed in order to get the earnings you want/need for that period".
This is how the game is played, my friends.
I'm sure these accounting irregularities are limited to Green Mountain, and not an indicator of widespread (and generally accepted) accounting fraud.
Sounds like GMCR stopped making deliveries of complimentary Double Jolt Java to the boyz at the SEC and they decided to zip their pants and lay down the law--wouldn't want things to get outta hand or the whole system could get fucked up.
I suspect Green Mountain didn't receive that accounting exemption they were looking for from the "Intelligence Czar" and went ahead anyway with the accounting fraud. Who would have thought coffee isn't a National Security Priority? Don't our troops, and the population back home, need to be caffeinated?
Intelligence Czar Can Waive SEC Rules
http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily
Green Mountain Shorts Face Adrenaline Rush
Why hold a coffee company accountable for their quarterly statements when every bank and financial is allowed to fudge their financial statements with impunity to the point its impossible to ascertain the risk involved. Double Standard?
No standards for anyone. It is a matter of national security.
+1 marktowhateverthefuckyouwant for everyone!
The way things have been going, the SEC will soon announce the problems with revenue recognition have been resolved and the GM's revenues were actually higher than stated. Shares pop and we should have bought on this "dip".
I am enjoying the ads that pop up when I clicked this article. I can save $10 if I order 4 boxes of K-cups.
On a related note, this is going to kill the stock if there are "accounting irregularities" and they have to restate results. If that is the case, it will not bode well and the price could become a sub $5 stock easily. Hopefully this is an isolated event and not the tip of the iceburg as in 2001.
Show me the narcotics.
(You heard it here first)
Do my eyes decieve me or are we about to go green yet again?
Mo' money, Mo' money, Mo' Money.
Ben should've tried out for a part in "In Living Color"
Do my eyes decieve me or are we about to go green yet again?
Mo' money, Mo' money, Mo' Money.
Ben should've tried out for a part in "In Living Color"
News flash (future?). SEC clears finding and fines them $2.00. Stock gaps to $40. Bookmark it
Maybe good news for DDRX.
The best thread I have read on any blog ever.Laughing so hard there are tears in my coffee.
Surely that is the only cockroach.