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Keurig's Kraft Deal Seen 'Modestly' Boosting EPS, Sales

John Seward

Keurig Green Mountain (NASDAQ: GMCR) unveiled a licensing and distribution agreement Friday, enabling it to include four Kraft-branded coffees in its line up of specially-packaged brews for Keurig coffee makers.

Financial terms weren't disclosed, but Stifel's Mark Astrachan said the deal should "modestly" boost Keurig's earnings and revenue.

Keurig shares traded Friday afternoon up about 14 percent to $134.18. The company plans on Sunday to roll out its Keurig 2.0 Brewing System that can brew up to four cups of coffee.

Keurig said it will offer Kraft Foods' (NASDAQ: KRFT) Maxwell House, Gevalia and Yuban brands, as well as McCafe, a brand to launch next year by Kraft in partnership with McDonald's (NYSE: MCD).

The Kraft agreement covers several portion pack formats including those compatible with the Keurig 2.0 Brewing System.

Astrachan said the timing of the deal just ahead of the new system's roll-out suggests "extremely favorable" financial terms for Keurig. Either that, or that Kraft was "uncomfortable" with legal issues surrounding unlicensed avenues to offering its brands in formats compatible with the new machine, Astrachan said.

The Kraft agreement may, however, cause increased price competition with producers that plan to produce unlicensed pods compatible with the Keurig 2.0 brewer, Astrachan said.

The Kraft brands packed for Keurig will begin to launch in fall 2014. Initially, both Kraft and Keurig will manufacture for single-serving pods. Later, Keurig will become the exclusive manufacturer of Kraft-branded Keurig packs using coffee sourced, roasted, and blended by Kraft.

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