2012 Space Odyssey: Dave? Dave? Dave... What are you doing Dave?
Details of correct last year, dead wrong and about to "Einhorn"(vt) himself now:
1. Did you ever hear the one about Iraq's weapons of mass destruction? We've all seen that Dave's sophomoric "accounting fraud" allegations were nonsense; now they are washed, rinsed and hanging out to dry... still smelling like a musky dog, though, especially since yesterday he repeated his "something is fishy" (i.e., "gmcr's BOD didn't come back with the answers we wanted") on this topic.
2. His comments on generating cash flow from and FCF (note debt was actually reduced in the period) are just plain wrong. Forget that the company suggests north of $100m of FCF for 2013 is in the bag, or that they see enough FCF along with LOC to repurchase $500m shares f24m from June, just look at their FCF for 9 months vs the earlier year period. yes, cash generated by operations is UP 179% to $488M vs $175M for first 3 q of FY 2011. Hello Dave? You need a new analyst group.
As for FCF? As HAL said in 2001 A Space Odyssey, Dave? Dave? Dave? Dave? for the 9 months ended Sep 2012, GMCR generated $183m of FCF (again, with declining total debt) vs negative $1m for 2011.
3. Competition is going to stomp on GMCR? Ignore the foregoing cash flow metrics and that revenues grew more than 20% in the first year Dave suggested they would be crushed by competition (LOL). Might the "competition" (now) take some of the rapidly growing overall single serve market? We are sure they will... but it will hurt SBUX overall, and the lesser quality coffee players don't matter to the GMCR loyals either. In fact, whatever success sbux has will serve to build SS awareness and emphasize that GMCR
coffee is as good or better and costs half as much per cup (AND ROUGHLY 10% OF A LATTE IN THE CROWDED MORNING LINES AT SBUX!). We also expect GMCR to maintain a robust overall market share of this rapidly growing niche.
4. Dave suggests capital expenditures are reckless... undisciplined at least... Dave? Dave? Dave? Dave? We think those guys must be including the inventory build for the new brewers and raw materials to handle ramping sales and need to make the broadening line of SS packs in your goofball number crunching of the Jeopardy question of "What is a capital expenditure?" Capex is down Dave... Dave? Dave?
5. Dave suggests the story still has all the same problems it did a year ago... as you can see from the debunking of Dave's nonsense points above, the ONLY thing he was "right" about last year was the valuation and downside for the shares. At 50x+ materially lower earnings last year, that WAS correct. But as of now, to suggest that is still valid is plain stupid. The story is going along extremely well, depth has been added to the BOD and management, the stock repurchase plan is underway, the new brewer products and coffee (as always) are terrific, and now the stock is trading at 10x this year's earnings.
The stock is going to torture out the shorts... a poetic reversal of fortunes for them and the longs here... Of course, we came late to Dave's party, and now own a few truckloads in the low $20s in the fund. Our summation? BUY ALL YOU CAN! before the sustained run back above $35 gets underway this month.