Kraft Foods Inc. (KFT) issued its fourth-quarter report earlier today. Sales increased over 3%, but organic net revenues were flat. Restructuring initiatives helped to drive a very significant jump in operating income, as well as a nice expansion of the operating margin. Net income from continuing businesses came in at 48 cents per share. Not only did this represent robust growth, but it beat estimates by three pennies, according to our earnings preview.

Management promoted an awesome fact in the release: free cash flow was up over 30% for the full fiscal year. Changes in working capital aided the increase. I like it.

Kraft Foods Inc. (KFT), which is acquiring Cadbury for more than $19 billion, is scheduled to discuss its fourth-quarter financial results in a presentation to the Consumer Analyst Group of New York conference on Tuesday, Feb. 16, at 10:30 AM (ET), by CEO Irene Rosenfeld and CFO Tim McLevish. A live webcast of the presentation can be accessed at the company's website.

During the three months that ended in December, Kraft made investments in Russia, saw new board members and declared a quarterly dividend. Analysts surveyed by Thomson Reuters are looking for earnings for that period of $0.45 per share. That compares with $0.55 per share in the previous quarter and $0.42 per share a year ago. Revenue for the fourth quarter is expected to be 2.8% higher than a year ago to $11.1 billion.

Option traders pushed up call option prices in the general entertainment industry and pushed up put option prices in the diversified utilities industry today.

Bullish Volatility Skews

• World Wrestling Entertainment Inc. (WWE) -- part of the general entertainment industry -- came in at the top with a volatility skew of 1.18. This may come as a surprise as WWE is down 1.53% for the past month.

Kraft Foods (KFT) agreed a deal to buy Cadbury (CBY) for around 11.9 billion pounds ($19.6 billion), creating the world's top confectioner. Kraft had to increase its offer, injecting more cash into the bid to win over the 186-year-old Cadbury, which has finally surrendered its independence and accepted the sweetened offer.

Kraft's offer is 840 pence per Cadbury share, with shareholders also getting a 10 pence special dividend, bringing the offer to a total of 850 pence per share. The new bid has won unanimous recommendation from the Cadbury board. Cadbury shares hit a record high of 838 pence in early trade in London and jumped over 5% to $54.63 in premarket trading.

U.S. stock futures were slightly lower Tuesday morning as investors returned from a long weekend ready for earnings season to get in full swing with Citigroup (C) and IBM (IBM) reporting Tuesday. Also, several mergers greeted traders, including, finally a $19.5 billion offer for Cadbury by Kraft Foods.

On Friday, U.S. stocks fell after JPMorgan Chase & Co (JPM) reported better-than-expected results, that included, however, deep fourth-quarter loan losses. Also, a consumer sentiment survey was weaker-than-expected as consumers were increasingly concerned about income and employment.

Shares of Cadbury (CBY) are moving slightly higher today, on news that Hershey (HSY) could be announcing a solo bid for the company as early as next week.

It was just a couple days ago that Cadbury rejected another bid, for $16.91 billion from Kraft Foods (KFT).

In the massive cross-border hostile takeover battle, Cadbury (CBY) again said "no" to Kraft's (KFT) $16.91 billion offer. Although, in buyout-speak, the response was in a press release that called the deal "fundamentally unattractive" and even "derisory" (yes, the attorneys have spent time at the thesaurus).

Why the rebuff? Cadbury reported a healthy 2009 and expects the good times to continue into 2010. In other words, a buyout is not necessarily evil -- that is, so long if the price is right.

IBM (IBM) closed at $130.57. IBM is expected to report Q4 EPS on Jan. 19. January option implied volatility is at 16, February is at 21, April is at 22; below its 26-week average of 24 according to Track Data, suggesting decreasing price movement.

Cadbury PLC (CBY) closed at $50.81. The European Commission's has a Jan. 6 deadline for reviewing Kraft's (KFT) plan to buy CBY. Cadbury, the world's second largest confectioner, rejected Kraft's buyout bid in November. Hershey (HSY) and Italy's Ferrero have said they are considering rival offers for Cadbury. January call option implied volatility is at 26, puts at 29, March volatility is at 27; verses its 26-week average of 27, according to Track Data.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

This morning, Cadbury (CBY) lifted its sales and margin forecasts. Some believe this is a move to stop a hostile takeover from Kraft (KFT). Cadbury upped its sales and margin forecasts to reflect organic revenue growth of 5% to 7% a year during the next four years. This forecast is up from its previously forecast range of 4% to 6%. Cadbury also believes it will have improved margins of 16% to 18% by 2013.

Cadbury chairman Roger Carr told shareholders, "Kraft is trying to buy Cadbury on the cheap to provide much-needed growth to their unattractive low-growth conglomerate business model. Don't let Kraft steal your company with it derisory offer."

U.S. stock futures edged higher Wednesday morning, a little above the 13-month highs they reached Tuesday, as investors await key data figures, including consumer prices and housing starts. As traders take a breather from the recent runup in stocks, the same trends that pushed markets higher on Tuesday remain: the dollar dropped and commodities soared, driving mining stocks higher in overseas markets.

[Update 8:30 a.m.: October housing starts were down 30% from last year, the weakest since April. CPI rose 0.3% in October on higher energy, car prices. At first glance, these figures may affect the mood negatively. 8:35 a.m.: Stock market futures are declining, indicating a lower start.]

Ahead of the pre-determined deadline, Kraft (KFT) decided to launch its formal offer for U.K.-based chocolate maker Cadbury (CBY). KFT announced that the cash-and-stock bid is worth $16.46 billion (9.8 billion pounds) or 717 pence per U.K.-listed CBY share.

At that rate, KFT said the bid is 37% higher than CBY's July 3 close. KFT added that no other potential buyer has declared interest in CBY. KFT is offering CBY shareholders $5 in cash and 0.26 share in KFT. For each American CBY share, KFT is offering $20 cash and 1.04 shares.

Halloween, though not the blockbuster holiday that Christmas is, still results in some additional spending on the part of consumers as they stock up on candy and costumes, and maybe take in a scary movie or two. With those treats in mind here are some stocks that may give investors sweet dreams -- and hopefully not nightmares.

As is well known, candy is all the rage at Halloween, and among the largest candy stocks are Hershey Co. (NYSE: HSY) and Cadbury PLC (NYSE: CBY). Last week, Hershey reported third-quarter earnings rose 30% despite weaker volumes affected by higher prices for its sweets. Last year's numbers also included special charges. Still the company said it expects full-year earnings to be ahead of Wall Street forecasts. In 2010, the Pennsylvania company said it expects earnings excluding items to rise 6% to 8%. The stock has a forward-looking price-to-earnings ratio of 16 and a current dividend yield of 3.1%.

Hershey (NYSE: HSY) had a more than acceptable third quarter in terms of bottom-line growth, but it looks like the market couldn't care less. As I write this, shares of the candy company are trading down 4.4% in the afternoon session, on extremely sweet volume (and by sweet, I mean bad).

On an adjusted basis, Hershey increased per-share profit by 14% to 73 cents. According to Earnings.com, analysts were only expecting 67 cents per share. Hey, what's going on? The Dow and the S&P 500 are in the green, and the NASDAQ is only down slightly. Shouldn't investors be happy with results like these?

Earlier today, the Street was abuzz with rumors that Kraft Foods (NYSE: KFT) was investigating the sale of brands such as Maxwell House and Oscar Mayer in order to raise capital to up its Cadbury (NYSE: CBY) bid to something a little bit sweeter (and one the confectionery giant might not reject).

Kraft responded to the rumors saying they were just that - unfounded conjecture - and noted that it would not in fact need to ditch hot dogs and coffee for creme eggs and Trident gum. A spokeswoman for the company told Reuters "The financing for this proposal does not require any divestitures." So where did these rumors get started, anyway? Is Kraft protesting too much?

Analyst upgrades:

• FBR Capital upgraded Ann Taylor (NYSE: ANN) to Outperform from Market Perform to reflect a recovery in the missy sector and the company's product improvement. The firm raised its target on shares to $19 from $13.
• Roth Capital upgraded Marvell Tech (NASDAQ: MRVL) to Buy from Hold based on product cycle strength in wireless and Ethernet, HDD share gains, and a return of PC growth. Target is $22.
• Goldman upgraded Colgate (NYSE: CL) to Buy from Neutral citing valuation and expectations for a pick-up in unit growth. The firm raised its price target to $85 from $83. Note that Goldman downgraded Clorox to Neutral from Buy.
• Cadbury (NYSE: CBY) was upgraded to Neutral from Underweight at HSBC.
• Garmin (NASDAQ: GRMN) was upgraded to Buy from Underperform at BofA/Merrill.
• Qwest (NYSE: Q) was upgraded to Market Weight from Underweight at Thomas Weisel.