The short term investing stock picks blog

This morning McDonald’s (NYSE: MCD) reported same store sales that were up 12%, driven by international markets, but also by a strong 8% increase in the US.  Much had been written about the potential for premium coffee to help boost McDonald’s earnings and drive above average growth for the next few fiscal years.  These expectations, in part, helped send its Northeast coffee distributor, Green Mountain (Newman’s Own) to 52 week highs, peaking around $40-$42.50.  Given this, you may expect Green Mountain Coffee Roasters (NASDAQ: GMCR) to be riding MCD’s coattails with today’s trading — it’s not.  As I write it is down nearly 4%.  This marks the 16th down day in the last 19 for a loss of around 36%.  Sure small caps are down during this same period, but not even close to as much as GMCR, thank god for that. 

So what’s the worry with GMCR?  It’s our old friendo: commodity price inflation.  With guidance given last week, management reaffirmed guidance for the second quarter (phew), but noted that it would be increasing prices 8-12% effective May 5 (oh shit).  They also noted that earnings remain highly susceptible to continued commodity price inflation.  Remember they not only have to worry about coffee prices, but also the milk and sugar to go with it.  It’s hard to justify such a premium (still over 45 P/E) with such heady times coming and I think investors are responding to this.  From a technical standpoint, you may see some Relative Strength bounces soon, but I expect this one to piddle around and maybe even test the $20 support from around April 2007.

I really like this brand and love this coffee, so I am pulling for GMCR, but even with MCD in the Northeast, this may be a bumpy quarter or two for the roasters from Vermont.

This entry was posted on Monday, March 10th, 2008 at 1:52 pm and is filed under Uncategorized. You can subscribe via RSS 2.0 feed to this post's comments. Both comments and pings are currently closed.