Starbucks Shares Up After Price Increase

Heather Struck
Starbucks Shares Up After Price Increase

A run-up in commodities prices may have had manifold effects in equities markets as companies have reported higher input costs that have strained sales of products. Evidence from the coffee-drinkers of the world shows that inflated coffee prices is also a reality, as consumers willingly pay the higher price tag for the dark-roasted gold.

Coffee distributors said this week they will raise prices on bagged coffee as futures soared for the Arabica beans on commodities exchanges in recent weeks, easing slightly to $2.65 per pound on Thursday. Price pressures have been weighing on companies like Starbucks, J.M. Smucker, Green Mountain and Kraft this year and have forced them to pass higher input costs onto the consumer.

Starbucks said Wednesday that it will increase prices by 17% on bagged coffee sold in Starbucks retail locations, to take effect in the U.S. July 12. The increase is the first for the company since 2009. Earlier this week Smucker hiked prices on its coffee products by 11%, marking its fourth price increase this year.

Brian Sozzi with Wall Street Strategies says that Starbucks shares may nonetheless be undervalued, as the higher prices are unlikely to deter enough customers to create a “sharp downdraft in global demand” for the company’s products. “ In turn,” he said in a note, “the platform may be set for a return to stronger EPS surprises than evidenced in the latest quarter (stock has barely budged since the late April earnings report), in line with the historical norms.”

Starbucks shares were up 1% Thursday at $36.53, while shares in J.M. Smucker were up the same amount at $77.11. Green Mountain shares were up 1.9% at $82.70.