Jim Cramer's Best Blogs

Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

• the Kraft-Cadbury venture,
• a growing weariness with the rally, and
• an end to the buying.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

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Kraft-Cadbury Could Jolt the Candy Aisle
Posted at 11:39 a.m. EDT, Sept. 14, 2009

Could Kraft(KFT Quote)-Cadbury(CBY Quote) lead to stable margins in the candy industry? Here's a cutthroat seasonal business that often has had problems with its margins.

When you read through the excellent trade press on the potential of the deal, all you can do is recognize how much this deal would be for candy the way Anheuser-Busch Inbev(BUD Quote) was for beer. In case you haven't followed the pricing in beer and the gross margins of the players, you may not recognize that we are in a major beer renaissance, not because of the top line, which is anemic, but in bottom line. You can't tell from looking at Inbev, but a gander at Molson Coors(TAP Quote) shows you exactly what I mean: "Relief post quarter," said a Bank of America/Merrill Lynch report from right before the takeoff at the beginning of August, and it really does tell the story.

Deutsche Bank, which has a buy on Molson Coors, also pointed out in an excellent report after the last quarter that "equity income was significantly better than expected," Why? "Margins significantly better than we expected as cost synergies" expected to ramp.

Left out of all of these reports, though, is the obvious: If you take out a big player in a competitive industry, you get pricing relief even as sales weaken.

Which brings me to this Kraft-Cadbury deal. The candy industry has been fractured among Mars, Hershey(HSY Quote) and Cadbury. While there are no true synergies with Cadbury and Kraft on the candy aisle, obviously the synergies from advertising and the lack of a need to price cut with the Kraft umbrella could have a huge impact on Kraft and other players.

On Kraft: Margins go higher, because the delivery system of Kraft to stores is already in place. Kraft does have Planters as a play on the snacks oil, but that won't move the needle much. Kraft would be able to cut costs though and get some growth.

More important, with Mars private and burdened by debt, and Hershey spending to try to take share, we could be in a rare moment where we get the same kind of oligopolistic pricing that beer has just undergone. In other words, no one has to do better top line -- this is an industry with little growth -- but everyone can benefit bottom line.

That's why I like this deal so much. It is the way of the future.

I would be buying Hershey off this. I would be buying Kraft after it gets Cadbury, and I think that should be rather soon, because it feels a lot like Inbev's pincer move on Anheuser-Busch.

A very good deal that can really make a difference to an industry with the same low growth as beer.

At the time of publication, Cramer had no positions in stocks mentioned.