Starbucks vs. Kraft -- Kraft Will Be Just Fine

Kraft's distribution rift with Starbucks is unlikely to have material impact on Kraft, according to analysts.

Author:: Andrea Tse
Publish date:: Nov 10, 2010 9:22 AM EST

NEW YORK (TheStreet) -- Kraft's (KFT) distribution rift with Starbucks (SBUX) - Get Report is unlikely to have material impact on Kraft, according to analysts.

Gabelli portfolio manager Barbara Marcin said Starbucks' Via instant coffee brand, which wasn't distributed by Kraft, was doing so well that Kraft had become dispensable.

However, Marcin, like other analysts, are doubtful that the rift will signficantly hurt Kraft, noting that the Starbucks distribution business generated merely 1% of Kraft's sales.

It's not that material," she said.

Echoing Marcin's thoughts was Stifel Nicolaus analyst Christopher Growe. In an equity research report, he noted that Kraft will be compensated for the split and that the Starbucks brand wasn't contributing meaningfully to Kraft's growth in the supermarket category anyway.

Kraft has been distributing Starbucks packaged coffee products in supermarkets and other food retailers over the last 12 years. Last Thursday, Starbucks said it wanted to end the parternship. The business was estimated to have generated annual sales of $500 million.

Kraft on Thursday confirmed its 2010 guidance for combined organic net revenue growth of 3% to 4% and operating EPS of at least $2; 2011 combined organic net revenue growth of at least 5% and mid-teens growth for operating EPS. The company said 2011 would include an extra shipping week.

The company said third-quarter net earnings fell 8.5% to $754 million, or 43 cents a share, from $824 million, or 55 cents a share the previous year. Earnings excluding items turned out to be 47 cents a share, topping the 46 cents a share consensus estimate. During the quarter, Kraft had greatly stepped up advertising spending.

Net revenue rose 26.2% in the quarter to $11.86 billion from $9.4 billion the year before, largely helped by the Cadbury acquisition and falling below the consensus target of $12.01 billion.

>>Search for Highest Dividends by Rate or Yield