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Seattle-based Starbucks Corp's (SBUX) impressive quarter results posted a profit of $278.9M, or 37 cents a share, up from $150M, or 20 cents a share, a year earlier in addition to an upbeat 2011 view. This result is fuelling Wall Street optimism over growth prospects, especially in the Food and Beverage sector, but the coffee major has publicly announced its willingness to part ways with Kraft Foods Inc (KFT), a move that could shake up the single-cup coffee market in U.S. grocery stores.

Starbucks Quarter Results: Starbucks (SBUX) reported that its profit for the quarter that ended Oct. 3 increased 86%. It posted a profit of $278.9M, or 37 cents a share, up from $150M, or 20 cents a share, a year earlier. According to WSJ, Starbucks Corp.'s customer-loyalty program, Via instant coffee and customized frappuccinos have been the main catalysts driving traffic to the coffee chain's stores during the fiscal fourth quarter, helping it post higher-than-expected earnings. U.S. sales at restaurants open at least 13 months jumped 8 percent in the fiscal fourth quarter from a year ago, driven by a 6 percent rise in customer visits and a 2 percent increase in spending per visit. International same-restaurant sales were up 7 percent, helped by a 4 percent traffic increase and a 3 percent rise in average ticket.

According to Thomson Reuters report, Starbucks Corp's upbeat 2011 view is fueling Wall Street optimism over growth prospects, prompting at least six brokerages to raise their price targets on the stock. Starbuck's shares soared to their highest level since mid-2007, a day after higher drink prices and improving store traffic allowed the company, which has more than 16,000 cafes around the world, to lift its earnings projection for the year.

Starbucks Store Expansion:
Despite a still-stuttering economic recovery and higher drink prices, Starbucks has continued to lure customers to its stores, brewing profits that impressed investors and analysts. Meanwhile the company plans to initiate about 500 net new stores globally in fiscal 2011- approximately 100 in the U.S. and approximately 400 internationally, the majority of which are expected to be licensed stores.

Starbucks-Kraft Deal:
Even as grocery stores are becoming an increasingly important distribution channel for Starbuck's products, the company has publicly announced its willingness part ways with Kraft Foods Inc, a move that could shake up the single-cup coffee market in U.S. grocery stores. Starbucks' public statement about its intention to end the deal sparked a tit-for-tat exchange of press releases, with both companies accusing the other of having improperly characterized the terms of the pact. Kraft Foods Inc (KFT), which also surprised Wall Street with its profit report, said it was too early to say what the impact of the lost agreement would be on its results. Kraft, which itself makes coffee under the Maxwell House brand has been distributing packaged coffee for Starbucks since 1998. Analysts believe that if and when the deal is terminated, it could mark a major shift for Starbucks' consumer-packed business, a key building block in Chief Executive Howard Schultz's strategy to drive future growth for the nation's largest coffee-shop chain.

Last year Starbucks made a surprising entry into the single-cup coffee market when it unveiled Via, the instant coffee that racked up $135 million in first-year sales. According to analysts at WSJ, Starbucks Corp.'s customer-loyalty program, Via instant coffee and customized frappuccinos have been the main catalysts driving traffic to the coffee chain's stores during the fiscal fourth quarter, helping it post higher-than-expected earnings.

An Overview Of Possible Future Trends:

Meanwhile J.P. Morgan analyst John Ivankoe said Friday in a research report that Starbucks could enter into new partnerships, selling single-cup coffee packets used for one-cup brewing machines, but since 80% of Starbucks customers don't have a single-cup brewer at home, the company might look at some venture with Vermont based Green Mountain Coffee Roasters (GMCR). Meanwhile RBC Capital Markets analyst Ed Aaron in a research note wondered whether this change could motivate Kraft to eventually divest Maxwell House. According to his back-of-the-envelope math, a terminated distribution deal with Starbucks may shave up to 4 cents a share from Kraft's earnings.

Amid the public statements, both companies have expressed confidence that they can plan to resolve matter in private. No matter which way the deal goes, one thing is for sure: exciting times are ahead for single-cup coffee market in U.S. grocery stores in the near future.

Author's Disclosure: No Positions

Source: Is Starbucks' Impressive Quarter Behind Kraft Deal Rift?