August 6, 2014 / 10:50 PM / 3 years ago

Keurig locks in prices on 75 percent of its coffee for 2015

NEW YORK, Aug 6 (Reuters) - Keurig Green Mountain, the maker of Keurig one-cup coffee brewers, has secured coffee prices for 75 percent of its 2015 needs at higher prices than 2014, a company executive said on Wednesday.

“We’ve got essentially the first three-quarters locked out and each one of those quarters will be at higher coffee input costs than the prior year quarter,” Fran Rathke, chief financial officer of Vermont-based Keurig Green Mountain, said on a conference call to discuss the company’s fiscal third-quarter financial results.

Coffee prices are notoriously volatile but an unprecedented drought in top grower Brazil in January and February took the entire industry by surprise, causing arabica coffee futures prices to nearly double within three months. This came after roasters benefited from a 2-1/2-year downtrend in arabica prices that bottomed out at about $1 per lb in November 2013.

The benchmark price is now down around 10 percent from the 26-month high reached in April above $2.15 per lb, but up more than 60 percent from a year ago. Coffee accounts for 16 percent to 18 percent of Keurig’s cost of goods sold, Rathke said.

“The benefit from lower coffee costs in Q4 will be less favorable than year-to-date trends,” Rathke said.

In July, Starbucks Corp, the world’s biggest coffee chain, said it locked in coffee prices for 60 percent of its fiscal 2015 needs, with the expectation that its full coffee costs for the year will be close to those of 2014.

Keurig Green reported lower-than-expected quarterly revenue as sales of its one-cup coffee brewers fell ahead of the launch of a new machine later in the year. It earned $155.2 million, or 94 cents per share, in the third quarter, ended June 28, compared with $116.3 million, or 76 cents per share, a year earlier.

Keurig Green Mountain has grown significantly in the U.S. coffee category, having taken top place for retail sales in 2013 with a 18.8 percent market share, up sharply from a mere 1.2 percent five years prior, Euromonitor International data shows. (Reporting by Marcy Nicholson; Editing by Steve Orlofsky)

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