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Cadbury profits dip, shares slip on no cash return

By David Jones
/ Source: Reuters

By David Jones

LONDON (Reuters) - The world's largest confectionery maker, Cadbury Schweppes , missed analyst forecasts with a 2 percent fall in 2007 profits and its shares dipped as it warned there will be no cash return from its drinks demerger.

Cadbury also gave a cautious outlook on Tuesday for the North American soft drinks business which is to be spun off at the end of the second-quarter, with profit margins down sharply in 2007 and unlikely to start to recover until 2009.

The London-based group had intended to return cash to shareholders on the demerger but has now decided against this in order to preserve investment-grade ratings for both companies. Cadbury shares slumped 6.1 percent to 575 pence, the FTSE 100's biggest loser, by 5 a.m. EST.

"There is unlikely to be a return of cash to shareholders as we have decided to maintain both companies on investment-grade ratings," Chief Executive Todd Stitzer told a conference call.

Cadbury decided last October to spin off its 7 billion pound ($13.7 billion) drinks business -- to be called Dr Pepper Snapple Group -- and list it in New York, after a world credit squeeze derailed a lucrative sale to private-equity buyers.

The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported 2007 underlying pretax profit of 915 million pounds, below an analyst forecast range of 922 to 936 million and a consensus forecast of 929 million pounds.

Cadbury is raising the 2007 dividend by 11 percent to 15.5p.

"While it is disappointing that there will be no return of capital following the demerger ... the focused confectionery business will see rapid earnings growth following both top-line growth and restructuring-driven margin advances," said analyst David Hallam at Evolution Securities.


The company said its 2007 underlying confectionery sales rose 7 percent, the best for a decade and ahead of its medium-term target of 4-6 percent, due to a recovery in its UK chocolate sales, helped by a TV ad of a gorilla playing the drums, and strong growth in U.S. gum.

But its North American soft drinks side saw a 3.4 percentage point fall in margins in 2007 due to dilutive bottling acquisitions and a loss on the launch of its sports drink Accelerade, and another decline is forecast for 2008.

Cadbury said it expects underlying confectionery sales to grow at the upper end of its 4-6 percent target range in 2008 and beverage revenues by between 3 and 5 percent, after the Dr Pepper Snapple business showed revenues up 4 percent in 2007.

Stitzer said although the economic outlook for 2008 remains uncertain, he was encouraged by good trading momentum the group has seen so far in 2008 and its cost-reduction measures, and he expects "meaningful" margin progress in 2008.

The group said its deputy chairman, Roger Carr, will be appointed chairman of Cadbury Plc, and Wayne Sanders, former president and chief executive officer of Kimberly-Clark, will become chairman of the new beverage group Dr Pepper Snapple.

Carr is currently chairman of up-for-sale UK pubs firm Mitchells and Butlers . Last month many of its shareholders called for him to quit after a failed property deal put the future of the All-Bar-One and O'Neills group in doubt.

Cadbury set out its medium-term targets last June for annual revenue growth of 4-6 percent and mid-teen percentage operating margins by 2011, driven by a 15 percent cut in its global workforce and number of factories by 2011.