Kraft Foods Expands SodaStream Deal

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Kraft Foods, Inc. (MDLZ) has expanded its existing partnership with SodaStream International, Ltd. (SODA) to use its powdered beverage Kool-Aid with the latter’s soda making machines. The partnership involves the manufacturing, marketing, distribution and sale of Kraft Foods’ beverages like several varieties of Crystal Light, and Country Time, a lemonade brand, for use with SodaStream’s soda making machines.

Kool-Aid will be offered in Cherry, Grape and Tropical Punch flavors and will be available in the U.S from the fourth quarter of 2012.

The partnership with Sodastream will help both the companies reach out more extensively to the growing number of health conscious consumers. Soda making systems offer a healthier way to enjoy carbonated beverages at home for these consumers.

At the moment, Kraft Foods is in the process of being divided into two independent public companies: a global snacks company and a North American grocery company. Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. The North American grocery business would consist of the current U.S. Beverages, Cheese, Convenient Meals, Food Service and, Grocery segments as well as the non-snack categories in Canada. The transaction is expected to be completed before the end of 2012.

We currently have a Neutral recommendation on both Kraft Foods, Inc. and SodaStream International, Ltd. The stock of Kraft Foods, Inc. carries a Zacks #4 Rank (a short-term ‘Sell’ rating) and the stock of SodaStream International, Ltd. carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

We appreciate Kraft Foods’ diverse brand portfolio and significant exposure to the fast growing markets. Moreover, continued strong momentum from the core brands (Power Brands) adds value. Further, the split of its North American business is expected to allow Kraft to focus on its distinct strategic priorities and allocate resources optimally. However, we remain concerned about rising input costs and slow economic recovery.

Headquartered in Northfield, IL, Kraft Foods Inc. is one of the largest branded food and beverage companies in the U.S. and the second largest in the world.  Kraft’s products include six consumer sectors: biscuits, confectionery, beverages, cheese, grocery and convenient meals. The company sells its products in approximately 170 countries.

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