Kraft and SodaStream Ink Deal - Analyst Blog
January 10 2012 - 8:49AM
Zacks
Kraft Foods Inc. (KFT) has teamed up with
SodaStream International Ltd. (SODA) to make use
of the SodaStream system for manufacturing and distributing some of
Kraft's branded flavors.
SodaStream manufactures beverage carbonation systems, which
enable consumers to easily transform ordinary tap water instantly
into carbonated soft drinks and sparkling water. In addition, it
sells its soda-making machines, flavors, carbon dioxide refills,
and re-usable carbonation bottles around the world.
Under the deal, Kraft will produce, market, distribute and sell
its branded flavors that will be used in a carbonated beverage. At
a nascent stage, Kraft will chiefly provide the women's diet
beverage Crystal Light and lemonade brand Country Time. In
addition, the new carbonated drink will include the "All-Natural"
lemonade.
Though the financial terms of the deal were not disclosed, both
Kraft and SodaStream have agreed to launch their products during
the second quarter of 2012.
Kraft will thus be able to make available its products to
consumers who prefer to have their beverages carbonated. It will
not only enhance the visibility of Kraft’s brand, but will also
ensure consumer acceptance in U.S., as the demand for lemonade and
iced tea is very strong.
However, some of the analysts have argued that though SodaStream
is a nice product, it is also very expensive compared to Coca-Cola Company
(KO) and PepsiCo Inc. (PEP). SodaStream requires
one to spend on a machine along with the mixes and the CO2 bottles,
making the product costlier compared to the prices of a 2-liter
bottle of Coca-Cola or Pepsi.
Moreover, both Coca-Cola and Pepsi dominate the soda market,
making it so it will be challenging for SodaStream and gain its
market share.
Nevertheless, the deal is expected to boost the SodaStream
business model. Moreover, this partnership may also is expected to
open up the doors for other Kraft beverage brands to SodaStream,
including Kool-Aid and Capri Sun, as the deal is a perfect
combination of Kraft’s brands and SodaStream’s technology.
In other news, Kraft has recently named the CEOs and CFOs for
the two companies that will be created after it splits into two
entities.
Kraft had planned to spin off its North American grocery
business to its shareholders and split itself into two independent
public companies. It will split into a high-growth global snacks
business with estimated revenue of $32 billion and a high-margin
North American grocery business with estimated revenue of $16
billion.
Global snacks will henceforth consist of the current Kraft Foods
Europe and Developing Markets units as well as the North American
snacks and confectionery businesses. Kraft wanted to acquire
Cadbury to provide scale for the snacks business, especially in
emerging markets such as India. The North American grocery business
would consist of the current U.S. Beverages, Cheese, Convenient
Meals and Grocery segments and the non-snack categories in Canada
and Food Service.
Further, Kraft has announced that the current CFO of
Kraft, David Brearton, will continue as CFO of the independent
global snacks company, whereas Kraft CEO Irene Rosenfeld will lead
the global snacks company as its CEO.
Similarly, the current president of the North American foods
division, Tony Vernon, would become the CEO of the North American
grocery business; and Timothy McLevish will be the CFO of the North
American grocery business upon the completion of its planned
split.
The changes will become effective when the two new companies
complete their split before the end of 2012.
We remain encouraged by the company’s investments in quality
upgrades, promotions and marketing as well as initiatives taken to
improve margin and productivity by reducing manufacturing and
overhead costs and enhancing operational efficiencies by
modernizing plants and information systems.
However, higher commodity costs, increased marketing expenses,
competition from private labels and the presence of tough
competitors like Unilever Plc. (UL) and
ConAgra Foods Inc. (CAG) add to our
concerns.
Currently, we prefer to rate the stock as Neutral. Further,
Kraft Foods holds the Zacks #3 Rank, which translates into a
short-term Hold rating.
CONAGRA FOODS (CAG): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
SODASTREAM INTL (SODA): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
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