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Green Mountain Sinks on Low-Caffeinated Outlook

The Exchange

Green Mountain (GMCR) shareholders aren't feeling too perky on Thursday following Wednesday's disappointing earnings report, in which the company slashed its fiscal 2012 outlook amid sluggish sales of its single cup Keurig brewers and portion packs. The stock is plunging as much as 49 percent in midday trade, slashing close to $4 billion in the company's market cap, which stands now at around $3.8 billion.

The stock's plunge is good news for GMCR shorts including hedge fund manager David Einhorn, who last October 17 killed the company's caffeine buzz in a presentation that highly criticized its business model, transparency and accounting. The stock was trading at around $82 on that day. Today its range has been between $29 and $24. One year ago today, shares closed at $64.07.

According to reports around Green Mountain's earnings call, it seems the company itself is a bit puzzled as to why sales are slumping to such a degree. Everything from the unseasonably warm winter (apparently, people don't want to drink hot cocoa when it's 50 degrees out in February) to rising prices to changing customer purchasing patterns were cited as possible culprits, and CEO Larry Blanford stated, "We have a number of efforts underway to really understand the overall portion pack demand."

It's been tough times lately for Green Mountain, which had another bad day on March 9, after Starbucks (SBUX) announced it would enter the single-serve market with its own brewing machine, Verismo, due out at the end of the year.

This challenge to Green Mountain's massive 70% share of the single-cup market gave investors the jitters. Even though Starbucks stressed that its deal with Green Mountain to sell K-Cups would continue and called its partnership "solid," Green Mountain closed down more than $10 that day, just as Starbucks hit $50 for the first time (on a split-adjusted basis). With today's plunge, Green Mountain is down more than 50% since the announcement, while Starbucks is up around 10%.

Along with Starbucks, Keurig brews single cups from brands that include Dunkin', Tully's, Celestial Seasonings, Newman's Own, Wolfgang Puck and Donut House Collection (which, according to Keurig's Web page, boasts a chocolate glazed donut coffee that just begs to be sampled).