Here’s Why Green Mountain Coffee is in Hot Water
Green Mountain Coffee Roasters (NASDAQ:GMCR) is in enough hot water to brew more than one pot of coffee as another lawsuit adds to its already loaded docket.
On Monday, Green Mountain investors filed a consolidated securities lawsuit alleging that the company misrepresented customer demand for its Keurig and K-Cup products. The plaintiffs, including the Louisiana Municipal Police Employees’ Retirement System, are seeking undisclosed damages for all investors who bought shares in the company between February 2, 2011 and November 9, 2011.
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The complaint lodged with a federal court in Burlington, Vermont, claimed that “unbeknownst to investors, and contrary to defendants’ statements that they were barely able to ship orders as they came in, Green Mountain Coffee Roasters’ warehouses were overflowing with unused and expiring coffee products that were not being sold to consumers.”
Shareholder lawsuits have accumulated for the coffee roaster as of late; in addition to its most recent case, the company is a defendant in a consolidated shareholders lawsuit that was brought in 2010, and it faces a derivative shareholder lawsuit in Vermont. Furthermore, the United States Securities and Exchange Commission launched an inquiry in September 2010 regarding Green Mountain’s alleged channel stuffing, a practice used to inflate sales and earnings figures by sending more products through distribution channels than it could sell to the public. This action prompted hedge fund manager David Einhorn to criticize the company for its accounting practices and lack of transparency.
Green Mountain is also facing an onslaught of competition, as Einhorn said in March. The main patent for the company’s K-Cups expired in September, allowing other manufacturers and grocery stores, like Safeway (NYSE:SWY) and Kroger (NYSE:KR), to develop private-label capsules that fit into its Keurig machines.
Starbucks (NASDAQ:SBUX) has also applied pressure to the coffee roaster’s business; the company’s K-Cup dollar penetration is projected to increase in the third quarter. In an effort to compete with its rivals, earlier this year Green Mountain introduced the Vue, a machine that makes lattes and cappuccinos. However, Starbucks recently began selling a single-serve brewer of its own, the Verismo.
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