Shares of Kraft Foods Group, Inc. reached a new 52-week high of $60.52 on Jun 9 after it reportedly increased prices of some coffee products following a similar action by another coffee player The J. M. Smucker Co. (SJM - Analyst Report) in the same week.
According to media reports, Kraft increased the U.S. retail prices for its Maxwell House and Yuban roast and ground coffee brands on Jun 6. The coffee maker raised the prices of its coffee products by approximately 10%. According to The Wall Street Journal, Kraft stated that the price rise does not apply to its instant and single-serve coffees or Gevalia and Tassimo brands.
On Jun 3, J. M. Smucker announced list price increases of its Folgers and Dunkin' Donuts branded coffee products which it licenses from Dunkin’ Brands Group, Inc.(DNKN - Analyst Report). J. M. Smucker increased its packaged coffee prices by an average of 9% to counter the continuous hike in green coffee costs. However, the price increase does not affect K-cup packs sold at restaurants.
The rise in green coffee costs is largely due to the increasing prices of Arabica coffee since January this year as a result of an ongoing drought in Brazil.
Per media reports, both Kraft and J.M. Smucker last raised their coffee prices in 2011 in response to higher 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 the companies slashed packaged coffee prices.
Coffee prices are highly volatile and are subject to weather changes and pest infestation. Also, political decisions in coffee-producing countries, worldwide supply and demand, relative strength of the U.S. dollar and speculative trading influence coffee prices.
Kraft’s pricing has declined for the past several quarters due to lower commodity driven pricing in coffee and raw nuts. We believe the recent price rise should provide some relief and pull up the top line which has been soft ever since the split from snack company, Mondelez International, Inc. (MDLZ - Analyst Report) in 2012 due to broader macro pressures. However, higher prices may create some near-term volume headwinds.
Kraft carries a Zacks Rank #3 (Hold).
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