Kraft's (KFT) Latest Chess Move: Up Guidance Ahead Of Cadbury Bid

Kraft (NYSE:KFT) improved is chances of making a viable bid for Cadbury before the UK government deadline of November 9. The US company beat expectations and raised guidance. Its shares dropped 2% to $27.10, probably because the company’s shareholders feel that they are better off without the integration risks that a Cadbury deal represents.

Revenue declined 5.7% to $9.8 billion. Operating income increased 38.7% from the same quarter last year to $1.42 billion. EPS from continuing operations were $0.55.

Kraft  increased its guidance for 2009 diluted EPS to at least $1.97 compared to the previous expectation of at least $1.93. The new guidance reflects strong year-to-date profit performance and a reduction in its full-year effective tax rate to about 30% versus the previous expectation of about 31.5 %. In other words, a reasonable part of the improvement has to do with taxes.

Kraft will probably make a new, hostile bid for Cadbury within the day. Cadbury announced strong earnings and its own improved forecast at the end of last month. Kraft will probably attempt to buy the UK company without raising its current bid. The battle between the two companies is likely to go one for months, unless Kraft is willing to sharply improve its offer, and, if it does. its shares are likely to fall further. Wall St. thinks the deal is already rich.

Douglas A. McIntyre