The J. M. Smucker Co.
) recently increased its packaged
by an average 9% in order to tackle a continuous hike in green
coffee costs. The rise in green coffee costs is largely due to
increasing prices of Arabica coffee since Jan this year as a result
of an ongoing drought in Brazil.
Ohio-based Smucker, which is slated to release its fourth
quarter and fiscal year 2014 results on Jun 5, mainly increased the
price of Folgers and Dunkin' Donuts branded coffee products which
it licenses from
Dunkin' Brands Group, Inc.
). However, the price increase does not affect K-cup packs sold at
The company last raised its prices in May 2011 by an average of
11% for most of its coffee products. That followed a 10% hike in
Feb 2011 and a 10% increase in Aug 2010. Other coffee companies
Keurig Green Mountain Inc.
) also followed in Smucker's footsteps and raised prices of their
coffee product around the same time due to high green coffee costs
and other factors like higher demand for the product and changing
weather conditions for Arabica coffee crops.
However, green coffee costs started declining thereafter and in
Aug 2011, Smucker cut coffee prices by 6% for its coffee brands,
including Folgers, Millstone and Dunkin' Donuts. In May 2012,
Smucker again slashed its packaged coffee prices by an average 6%
owing to continuous decline in green coffee costs.
The profitability of Smucker largely depends on the prices of
green coffee. Coffee prices are highly volatile and are affected by
weather and pest infestation. Also political decisions in
coffee-producing countries, worldwide supply and demand, the
relative strength of the dollar, and speculative trading also
influence coffee prices.
The recent hike in coffee prices is going to adversely impact
the sales volume of the company. During the third quarter
conference call, the company also anticipated lower volumes, a
difficult pricing environment in key categories and currency
headwinds to persist in fiscal 2014.
Smucker currently holds a Zacks Rank #4 (Sell).
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