Keurig Green Mountain Signs Deal With Key Holdout Kraft

Investor's Business Daily

Keurig Green Mountain shares rose after the maker of coffee brewers announced Friday that it will partner with Kraft Foods to make Maxwell House and McDonald's McCafe pods for its upcoming Keurig 2.0 brewer.

Shares of Keurig (GMCR) rose 13% to 133.36, hitting a record 135.99 intraday. The stock is up nearly 77% so far this year. Kraft (KRFT) shares fell four cents to 57.22.

Keurig in 2014 has announced partnerships with Nestle's Coffee-mate, Harris Teeter Supermarkets (HTSI) and Peet's Coffee & Tea. It already has K-Cup license deals with Starbucks (SBUX), Dunkin' Brands (DNKN) and others.

Kraft had been a notable brand holdout.

"Having exposure to the faster-growing portions of beverages across the board is something many companies are striving for," Williams Capital Group analyst Marc Riddick told IBD.

He expects more Keurig deals. "Future opportunities include the development of private-label and retailer-owned brands," he said.

He noted Costco's (COST) Kirkland Signature K-Cup and the addition of Target (TGT) as an Archer Farms brand partner.

Since its K-Cup patent expired in 2012, Keurig has had to compete with unlicensed portion-pack makers.

The Keurig 2.0 brewer is designed to work only with licensed K-Cups, but it is unclear if it will be effective in shutting out imitators.

Williams Capital upped its price target on Keurig on Thursday to $131 from $125.

"Keurig Green Mountain remains a vital participant in the long-term growth of single-serve beverage consumption ," Riddick said in his note, adding that Keurig is an "important contributor" as a growth generator for its partners.

Earlier this year, Coca-Cola (KO) initiated and expanded a stake in Keurig, with plans to develop a Keurig Cold machine for release in the next several months.

Last week, Keurig said it would hike prices by up to 9% on its portion packs and bagged coffee, starting Nov. 3. Other coffee sellers have raised prices in recent months following a drought in Brazil's coffee-growing region.

Kraft has been working its coffee game, too. Earlier in the week, Kraft announced that it would bring McDonald's (MCD) McCafe java to grocery stores.

In addition to McCafe, Kraft brands such as Maxwell House, Gevalia and Yuban will be available in single-serve K-Cups, four-cup K-Carafes that fit the new Keurig 2.0, and Keurig Bolt packs that brew half-gallon pots, the companies said.

"This agreement offers the opportunity for expanded distribution across multiple channels and is another example of our focus on long-term growth in action," said Kraft Executive Vice President Dino Bianco in a release.

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