Treasury Secretary Bessent Signals Tariff Relief for Key Commodity
The update could provide a nice compliment for some significant input costs for this holding.
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While coffee prices may not be one of the bigger input costs for Dutch Bros (BROS) , it appears that the cost for the company and others may be on the cusp of improving before too long.
We say that following comments from Treasury Secretary Scott Bessent that "substantial" tariff relief for a number of everyday consumer items would be announced shortly. And yes, one of them is coffee. Other named items include bananas and other fruits.
The question is, when will this happen?
Most likely, when a trade deal is announced with Brazil, the number one source of coffee imports for the U.S., according to USDA data. Recently, President Trump signaled that a deal with Brazil is likely, a comment that follows Trump’s move to increase tariffs on Brazil to 50%. It could also be with trade deals tied to Vietnam and Colombia, which are also large coffee exporters to the U.S.
When could that be?
Per an interview on Fox News earlier on Wednesday, Bessent shared, “You’re going to see some substantial announcement over the next couple of days in terms of things we don’t grow here in the United States, coffee being one of them…”
Let’s Not Forget Milk and Sugar
As we were reminded during our recent "Stocks & Markets" conversation with Black Rock Coffee (BRCB) CEO Mark Davis, “coffee is going to be a pretty small percentage of what we pay with when you look at our cost of goods. When you look at most coffee companies, dairy is going to be where they spend most of their dollars.”
And when we look at the trend in not only dairy but also sugar prices, another key ingredient for Dutch’s proprietary Rebel energy drinks and syrups, we see very favorable year-over-year comparisons. Per Dutch’s latest 10-K, “Neither our Dutch Bros Rebel energy drink, nor our syrups contain high-fructose corn syrup, as we use pure cane sugar as a sweetener for our non-sugar-free offerings.”
Our Take
The BROS story still centers on the footprint expansion and pending food menu launch that should drive average ticket higher. With the company stepping up that footprint expansion, something that led us to trim back our BROS price target, a trifecta of improving input costs could bring some cash flow relief. We continue to think a more interest-rate friendly environment in the coming quarters would be a boon to Dutch’s accelerated expansion plans, and one that, should it appear, could foster a price target re-think.
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At the time of publication, TheStreet Pro Portfolio was long BROS.
