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Coffee Slump Boosts Starbucks, Smucker Profit: Chart

The two-year slump in coffee prices is providing a profit boost for retailers including Starbucks Corp. (SBUX), J.M. Smucker Co. and Dunkin’ Brands Group Inc. (DNKN) as costs decline and consumers buy more.

The CHART OF THE DAY shows arabica-coffee futures plummeted 60 percent since reaching a 14-year high in May 2011. Over the same period, shares of Starbucks, the world’s largest coffee-shop operator, surged 88 percent in New York, and Smuckers, owner of Folgers, the best-selling U.S. brand, rose 47 percent. Dunkin’ Brands has shares more than doubled since an initial public offering in July 2011.

“Coffee costs have been a benefit to us all year,” Troy Alstead, the chief financial officer at Seattle-based Starbucks, said in an interview. Cheaper beans added 0.6 percentage point to operating profit margins that expanded to 16.4 percent in the three months ended June 30, up from 14.9 percent a year earlier, the company said yesterday in its fiscal third-quarter earnings statement.

Global coffee production will exceed demand by 4.46 million bags in the 2013-2014 season, the fourth straight year of production surpluses that will send inventories to the highest since 2009, the U.S. Department of Agriculture estimates. A bag weighs 60 kilograms, or 132 pounds.

Canton, Massachusetts-based Dunkin’ Brands, which reported yesterday that net income doubled in the quarter ended June 29, said franchisees using a purchasing cooperative are benefitting from cheaper coffee.

“Significantly lower” coffee prices reduced commodity costs for Orrville, Ohio-based Smucker, the company said in an earnings statement on June 6. Operating profit in its U.S. retail coffee unit, the company’s biggest, jumped 18 percent to $147.7 million during the fiscal fourth quarter ended April 30, the company said June 6. While lower retail prices reduced coffee revenue by 1 percent, Smucker sold more coffee as volumes grew 6 percent, the company said.

To contact the reporter on this story: Marley DelDuchetto Kayden in Chicago at mdelduchett2@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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