How to Trade Green Mountain Coffee Roasters Ahead of Earnings

By Andrew Keene  NOV 27, 2012 1:45 PM

The specialty coffee retailer has been volatile on earnings in the past, moving up two and down two in response to its last four earnings reports.

 


MINYANVILLE ORIGINAL Green Mountain Coffee Roasters (NASDAQ:GMCR), which sells specialty coffee including K-cup portion packs for instant coffee machines, will release its earnings report later today. The company is attempting to turn around its performance by hiring a new CEO, ex-Coca-Cola executive Brian Kelley. This helped the stock regain some of its losses. The stock has been in sharp decline in the last 52-weeks with a high of $71.15. It was down to $17.11 in July and it is currently sitting near the low at around $29.
 
Earnings have been mixed for the last five quarters, showing some growth year-over-year. Analysts have been off four out of the last five, missing two and beating two. Earnings are expected to decrease from last quarter by $0.04 and increase year-over-year by $0.06, which is expected due to the seasonality of the company's earnings in the past.
 
GMCR has been volatile on earnings, moving an average of 34% for the last four quarters, moving up two and down two in response to the earnings report. The ATM straddle is implying about a 20% move, which is less than the historical changes in the stock price.
 
With increased competition and inventory problems continuing, the stock should sell off on earnings.
 
My Trade: Selling the Nov. weekly 32-33 Bear Call Spread for $0.35
 
Risk: $65 per one lot
 
Reward: $35 per one lot
 
Breakeven: $32.35

No positions in stocks mentioned.