Judging by the numbers alone, Green Mountain Coffee Roasters Inc. (IW 500/305) possesses all the attributes of a great American success story.
The Waterbury, Vt., company's annual revenue has soared nearly 700% since 2007 to $2.7 billion. During that same timeframe, profits climbed to $199.5 million, up from just $12.8 million four years earlier, and its stock price hit a 52-week high last September of $115.98.
The company also achieved the highest jump on this year's IW U.S. 500 ranking, moving up 122 places after making its IW 500 debut in 2011. Green Mountain CEO Lawrence Blanford attributes the company's rise from a small café established in 1981 to a multibillion-dollar coffee packaging and brewing-machine manufacturer to its focus on innovation and market strategy.
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But like any meteoric rise, companies always face the risk that they'll come crashing down to earth. It's a reality that Green Mountain executives must address after the company's most recent quarterly revenues fell far below analysts' expectations for the second time in three quarters. As of late June, the company's stock price was hovering around $20 a share.
Adding to Green Mountain's woes is an ongoing U.S. Securities and Exchange Commission inquiry into its accounting practices. The company disclosed in 2010 the SEC is examining “certain revenue recognition practices and the company's relationship with one of its fulfillment vendors." In the same statement, Green Mountain noted that an accounting error dating back to 2007 resulted in a net-income overstatement of $4.4 million.
In an October presentation, hedge fund manager David Einhorn of Greenlight Capital blasted the company for its business practices, including suspected “shenanigans" with primary distributor M. Block & Sons Inc. to inflate financial results. Blanford says Green Mountain is cooperating with the SEC and that he believes in the integrity and ethics of the company.
Green Mountain's situation continued to deteriorate on May 4 when company founder and board Chairman Robert Stiller and Lead Director William Davis sold company shares to meet a margin call. The sales violated an internal company trading policy. The Green Mountain board responded by stripping both members of their titles and removing them from all board committees. Combine that with some expiring patents, and the company's future gets even murkier.
Though Green Mountain's troubles mar an impressive run, a look at its growth strategies and subsequent struggles could help other emerging enterprises reap similar benefits without the pitfalls.
