JVA will likely post a loss for the current quarter.
Am I the only one here who even looked at the quarterly report.
If you are considering holding this stock for any length of time you might want to read the bottom of page 10 of the report that came out today. If you do that you will see that JVA ended their second quarter hedged long 3 MILLION pounds of green coffee beans @ $1.975 per pound. OUCH
They are probably looking at taking a million dollar loss (and possibly more) on their hedges in the current quarter.
For the just reported second fiscal quarter JVA reported $2.6 million in net income, BUT half that income ($1.3 million) came from a hedging gain. Likewise, JVA got about half it's first fiscal quarter net income from a hedging gain.
Not going to be any hedging gain in the current quarter. Going to be a hedging loss instead. On top of that JVA tends to have poor operating results in times of falling coffee prices, and coffee has been in a steep downturn since their second fiscal quarter ended.
So for the current quarter I see them having poor operating results because of the sharply falling price of coffee during the quarter, COUPLED with a huge hedging loss, and the result I get is JVA posts a small loss for the current quarter.
They really screwed the current quarter with that hedge.
I'm going to have to look further into this. But those options were posted at April 30th 2014. At that time coffee was selling for $2.10 a pound.
They could have easily exited out of those contracts as the price started falling, I am sure they are not going to just sit with these options.
The other thing is they may have made a business deal to sell coffee at a certain price and bought these options to hedge with, as soon as they make the coffee sales in the future they will offset the sale with the options bought.
Saying that they sat with all these contracts, and they didn't make any business deals to sell coffee and locked in gains with these contracts is giving the short side of the story.
I wish someone who knew more about accounting here could chime in and give more details on what this all means.
Once again you are only giving the short side of the story.
1. Dunkin and Folgers both announced price increases which allows JVA to increase prices on it's private label offerings in Q3 which will increase margins.
2. Since coffee prices have fallen (even though they are still 25% higher than Q1), sales to GMCR and others will rise since they stopped buying in Q2 due to high prices.
3. GMCR just announced it has reached an agreement to have it's coffee offerings in every Subway. Since GMCR accounts for over 60% of JVA's sales, this will likely bolster sales in the coming quarters.
4. The recent fall in the price of coffee will reverse itself when enough longs exit their positions or take the short side of the trade. There are many problems with coffee growers outside of Brazil and it seems like this situation has been completely overlooked.
The expected increased sales in Q3 and higher margins due to retailers raising their prices will likely more than offset any potential hedging loss. And while JVA will remain profitable, the shorts will find any negative in the report and spread that as a reason to continue shorting the stock. There will be a massive short squeeze at some point just like what happened to GMCR late Friday afternoon.