More Battles in the Coffee Wars (KFT, SBUX, GMCR)

The ongoing battle between Kraft Foods Inc. (NYSE: KFT) and Starbucks Corporation (NASDAQ: SBUX) is getting more heated and it has industry-wide implications for the coffee sector.  Kraft alleges that Starbucks is violating the terms under its distribution deal and it is seeking an injunction.  Kraft wants compensation for the end of the distribution agreement that takes Starbucks coffee to grocery stores and other retailers.

Green Mountain Coffee Roasters (NASDAQ: GMCR) makes the K-cup and it is down worse than peers in the coffee wars.  The stock has recovered handily from its accounting woes, and it is very possible that today’s move is those locking in gains ahead of this week’s earnings report and deadline to file the 10-K in case more surprises are lurking.

The latest figure we have is that Starbucks is offering $750 million to exit this pact, but the figure that is being thrown around is a value of roughly $1.5 billion.  Kraft maintains that Starbucks is aggressively trying to take control, while Starbucks maintains that Kraft was not properly marketing it.

Starbucks shares are down only 0.3% at $32.62 while Kraft shares are down 0.4% at $30.19.

Consensus analyst estimates for Green Mountain Coffee for 2010 are $0.71 EPS and $1.34 billion in revenues and for 2011 are $1.18 EPS and $1.93 billion.  With a share price of $35.26 after a 2.8% drop, Green Mountain Coffee’s market cap is roughly $4.64 billion.  In its war to get its foot deeper and deeper as a coffee roaster and coffee product company, investors chasing the stock today are betting that the growth will last to 2012 to 2013.

Green Mountain’s short interest as of mid-November settlement was 24,366,828 shares and that is the third highest on record in 2010.  This is a battleground stock and that usually creates more volatility than normal.

JON C. OGG