UK: Cadbury shares fall despite record revenues

By | 19 February 2008

Shares in Cadbury Schweppes fell by more than 5% this morning (19 February) despite the UK firm reporting its strongest revenue growth for a decade.

Cadbury, the owner of beverage brands such as Dr Pepper and 7 Up, booked a 4% rise in underlying profits to GBP1.1bn (US$2.1bn) for 2007, although the result excluded currency fluctuations. When exchange rate movements were included, profits dipped 2%.

Revenue rose 11% to GBP7.9bn on a constant-currency basis, and 7% on a reported currency basis.

"These results reflect the benefits of restructuring initiatives undertaken between 2003 and 2007 and continued investment behind our brands," CEO Todd Stitzer said.

However, Cadbury was less certain about its prospects for 2008. Stitzer said the company, which has faced criticism of its performance from activist investor Nelson Peltz, expects "meaningful margin progression" this year but still sounded a warning on commodity costs.

"Commodity input costs are expected to be 5-6% higher in 2008 and we will seek to offset these increases through price rises," Stitzer said.

Cadbury said the demerger of its drinks operations in the US from its confectionery business would be complete during the second quarter of the year.

The company said that its Americas Beverages business saw base business revenues grow by 4%, which it called "a good result in view of the challenging US CSD market".

"Our CSDs continued to benefit from the trend away from colas to flavoured CSDs and an excellent performance from Snapple reflected highly successful innovation in super-premium teas and juices," the company added.

However, underlying margins (before the impact of exchange) were lower, reflecting the consolidation of bottling acquisitions and the losses arising from the launch of Accelerade.

Moving forward the company said that in 2008 it expects Americas Beverages to grow base business revenues between 3% - 5%, in spite of the impact of the loss of the Glacéau contract (which generated around GBP110m of revenues in 2007).

Commodity costs are expected to be around 6% higher with price increases on CSDs and juice products being implemented to offset these cost increases.

"We expect the margin impact from the lost contribution from Glacéau (around GBP20m) and a full year's dilution from bottling acquisitions to be partially offset by savings from the restructuring programme announced in October and the elimination of launch costs from Accelerade.  As a result, underlying margins in 2008 are expected to be modestly lower year-on-year. Given the relative timing of commodity price increases and marketing spend phasing, operating profit growth is expected to be weighted toward the second half," the company warned.

Sectors: Soft drinks

Companies: CSDs, Cadbury Schweppes, Dr Pepper

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