December 9, 2010 / 9:37 PM / 9 years ago

UPDATE 3-Coffee costs hit Green Mountain's outlook, shares sink

* Q4 results beat market estimates

* Sees Q1 adj EPS $0.14-$0.18 vs est $0.20

* Narrows FY 2011 EPS view $1.19-$1.29 vs prev $1.24-$1.29

* Rising coffee costs, higher marketing spend to hurt Q1

* Shares slump 18 pct after the bell (Recasts, adds details, updates share movement)

By Mihir Dalal

BANGALORE, Dec 9 (Reuters) - Green Mountain Coffee Roasters Inc GMCR.O gave a weak first-quarter profit outlook due to higher marketing costs and an expected volatility in coffee costs — becoming the latest coffee company to take a hit due to soaring prices.

Shares of the company fell 18 percent after the bell.

Coffee costs, including green coffee prices, have seen a sustained rise this year with prices for arabica coffee touching a 13-1/2-year high in November.

As of Sept. 25, rates for about 46 percent of the company’s green coffee purchase commitments of $204 million were not fixed making that portion vulnerable to swings in coffee prices.

In the past month, companies like Starbucks Corp (SBUX.O) and J.M. Smucker Co’s (SJM.N) Folgers have voiced concerns about the record-high coffee costs.

Starbucks Chief Executive blamed the rise in coffee futures this year on financial speculators. [ID:nN01150853]

Green Mountain, the top U.S. single-cup coffee machine maker, expects to ramp up marketing spend in the holiday quarter to induce consumers to buy its Keurig brewers, which it sells at cost, leading to another hit to its bottomline.

The company, which raised coffee prices in October in response to rising coffee costs, expects a first-quarter adjusted profit of 14-18 cents a share.

Analysts on average were expecting earnings of 20 cents a share, according to Thomson Reuters I/B/E/S.

However, the company’s fourth-quarter results were better than expected, helped by strong sales of its K-Cup coffee refills — Green Mountain’s main profit driver.

Green Mountain, which is facing a U.S. Securities and Exchange Commission inquiry into its revenue-recognition practices and its relationship with a vendor, said it was cooperating fully with the regulator and was responding to all information requests.

In late November, an internal probe triggered by the SEC inquiry revealed that accounting errors would have a lower impact than investors feared. The company’s shares have risen 24 percent since then. [ID:nSGE6AI0KK] Shares of Vermont-based Green Mountain fell 18 percent to $30.86 after the bell. They closed at $37.42 in regular trading on Thursday on Nasdaq. (Reporting by Mihir Dalal; Editing by Gopakumar Warrier)

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