Green Mountain Coffee Roasters

1. Green Mountain Coffee Roasters Matt Moore

2. Keurig Green Mountain As of March 12, 2014

3. Background • Started as small café in Vermont • Organic and Fair-Trade Coffee • Keurig Machines & K-Cups • Sell to wholesale Customers • Most of sales from K-Cups • Highest margins are on K-Cups

4. Competitors

5. Final Valuation Recap • Full information forecasts useful for valuation • Use info from F/S date until today • Use trends from line items to project a few years in future • Numerous items subject to personal opinion (aka “professional judgment”)

6. SEC Investigation • Investigation tied to M. Block & Sons, consumer products distributor • The SEC has investigated companies associated with M. Block & Sons before • iGo Corp • Sunbeam Corp • In 2010, M. Block distributed inventory that equated to 43% of GMCR sales

7. Financial Data • Sales for GMCR before 2011 are being investigated • Only using data from 2011 and beyond

8. David Einhorn Einhorn competing in World Series of Poker • Publically took massive short position • 110 slide presentation called “GAAP-uccino” • Claims “books are cooked” • SEC investigation into sales • No more dataK-Cup sales • K-Cup patent expired

9. Sales Breakdown

10. Slow Growth of Sales • Sales growth rate is rapidly slowing down • This is after the SEC opened investigation • Possible that GMCR may have been inflating sales • Bottom line, trend is not looking good for sales

11. Coca-Cola Agreement

12. YTD Graph

13. Projecting Data • Almost impossible to project impact of deal • How and When will this impact sales? • Scheduled to be released sometime in 2015 • Is the growth sustainable or crash and burn like original Keurig? • Look at current sales trends for Keurig

14. Analysts Thoughts • Mixed results after agreement • Most are now Buy/Hold • Not everyone upgraded, some even downgraded from buy to hold • Most that had sell upgraded • Couldn’t find projected sales for Keurig Cold

15. Valuation at 9/30/13 DCF, REI, and Abnormal Return valued company at: $7.67 billion Market Cap: $11.32 billion Even before new data, valuation of GMCR is considerable amount If used valuation value, stock would be overpriced by $24.49

20. Financial Statement Issues Number of questions regarding GMCR financial statements SEC hasn’t closed investigation, but it has been going on for years

21. Quantitative Vs. Non-Quantitative • Investors can look at modified financial statements (entire mods together) • Will only provide analysis of data • If data on financial statements are misleading, all work could be misleading

22. Quantitative Vs. Non-Quantitative • Large trends in environment will have impact on data • Declining Sales • Unknown future sales • I can make argument with data, but looking at big picture of how company works

23. Don’t Sweat the Small Stuff • Small items such as A/P vs. A/R turnover trend are not important to GMCR • These are important to P&G, a stable company • Sales and CI trends are more important to analyzing Green Mountain • Don’t want to get caught up in irrelevant details

24. Bottom Line Trends • New Products • Keurig 2.0 • Potential to renew patent • Keurig Cold • New competitors into single portion coffee makers could take market share • Cheaper alternatives to machines and K-Cups • Declining Sales for existing products • Even before patent expire

25. Recommendation • Given suspect data, declining sales, and unknown sales growth, it is hard to recommend buy. • New products could provide large returns • Recommendation: Hold • Future prospects too good to suggest sell

26. Questions