NEW YORK, June 5 (Reuters) - Tumbling arabica coffee prices earlier in the fiscal year forced J.M. Smucker Co, the biggest U.S. roaster, to offer promotional discounts, cutting profits in its U.S. retail and roasting business by 10 percent in the latest quarter.
“Pricing action taken in the quarter to reflect lower green coffee costs recognized earlier in the year, accounted for our net sales decrease,” Vince Byrd, president and chief operating officer for Smucker, told analysts in a conference call on Thursday.
The company’s U.S. offerings include such well-known brands as Folgers and Dunkin’ Donuts.
The quarterly profit drop in U.S. retail coffee took place as the arabica coffee futures market recovered from a 2-1/2-year downtrend that took bean prices to multi-year lows in November 2013. The market then soared nearly 90 percent within three months to the highest in more than two years at $2.19 per lb in April on an unprecedented drought in top grower Brazil.
The rally took the industry by surprise, and the futures price has since dropped around 20 percent.
The promotional discounts in Smucker’s fourth quarter ending April 30 were followed by an official 9 percent increase this week to its retail list prices in the United States.
On Thursday, Smucker reported a better-than-expected quarterly profit as costs fell and sales increased in its domestic food business, which makes Jif peanut butter and Crisco oils.
Smucker’s profit in U.S. retail coffee dropped to $133 million in its fourth quarter 2014, from $147.7 million a year ago, the company said in its quarterly report.
Its profit margin in U.S. retail coffee, however, was at 28.1 percent, compared with 27.6 percent in the fourth quarter of 2013.
For the full fiscal year, its profit in U.S. retail coffee was at $641.9 million, up from $607.5 million in 2013.
“The price to cost to timings impact have and will continue to occur from quarter to quarter,” Byrd said.
In terms of volume in mainstream roast and ground coffee, Folgers and Dunkin’ Donuts were up 1 percent in the quarter, Byrd said.
Liffe robusta coffee futures, which hold a discount to arabica, are currently up about 12 percent in 2014 so far. Arabica is typically used in roast and ground brews while robusta is either processed into instant coffee or added to roasted blends as a lower-cost alternative. (Reporting by Marcy Nicholson; Editing by David Gregorio)