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Thursday, July 28th, 2011
another cup

Green Mountain Coffee Roasters (GMCR) reported earnings last night.  Ah, but the question over a K-cup this morning is, “What were they?”

On the conference call, the CEO said up front, “Our non-GAAP earnings per diluted share increased 140% . . .,” and that was the basis for discussion, although there was some confusion during the Q&A about whether something was GAAP or non-GAAP.  These days, the latter rules the day in many cases, such that instead of “earnings calls” we should start calling them “non-GAAP calls.”

At a time when the SEC is giving Groupon grief about its creative reporting, it’s useful to remember that the lingua franca of analysis these days is decidedly non-GAAP.  Companies use a variety of measures, analysts adopt them, and data services and media outlets follow along.  The first thing you need to do when analyzing a company is to figure out what numbers are being used.

As for GMCR, a pair of Grumpy Old Accountants have looked at the past results and said, “GMCR’s managers are guilty of financial reporting fraud for issuing clearly misleading financial statements to cover poor operating performance.”  They see it as “obvious and building for nearly a decade.”

I looked at the transcript of last night’s call to see whether the corps of analysts covering the company prodded and probed its managers about such things.  They did not, although the majority of them did offer congratulations of one kind or another on the (non-GAAP) performance.

The chart above is an update of an earlier posting.  Trailing free cash flow is still negative although somewhat better.  The “net income” you see is GAAP, so GMCR’s version of its operating results would be quite a bit higher.  The star indicates where the stock is trading prior to today’s open.

Who will be left holding the grounds after this brew-hah-hah?  Granted, those grounds are not as messy as they used to be, all encased in plastic, but they end up in the trash just the same.  (Chart:  Bloomberg terminal.)