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Cadbury sees good growth, may miss margin target

Written by: Staff
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LONDON, June 7 (Reuters) Britain's Cadbury Schweppes Plc said it expects good revenue growth in 2006 towards the 5 percent upper end of its target range, but is unlikely to meet its target for growth in margins due to high oil prices.

The world's biggest confectionery group, which also makes soft drinks, said in a trading statement on Wednesday that after a relatively slow first-quarter, its performance improved in the second quarter helped by a number of new product launches.

Chief Executive Todd Stitzer said the high cost of oil would slice 12 to 15 million pounds (.4-28.0 million) off profits in the first-half, while it suffered a poor first-quarter in Britain and a slow start to the year in France and Russia.

''After a slow first-quarter we have seen a pick-up in the second-quarter, but if oil prices stay at their current high level it will cost us around 12-15 million pounds,'' Stitzer said on a conference call.

Analysts said the trading statement was generally upbeat with sales growth picking up after a slow start while margins were expected to be under pressure due to high oil prices. The share rose 0.9 percent to 507-1/2 pence by 0730 GMT.

''Cadbury is maintaining its strong revenue growth and that is the key helping the shares, especially coming after a weak first quarter,'' said one analyst.

The maker of Dairy Milk chocolate, Trident gum and Dr Pepper drinks is in the midst of a four-year 2004-2007 ''Fuel for Growth'' strategy aimed at increasing sales by 3-5 percent a year and operating margins by 50-75 basis points a year.

In 2005, the company exceeded its sales target with a 6.3 percent rise, but margins fell short and rose about 30 basis points to 15.9 percent.

Stitzer added a 10 basis point movement in operating margins equated to around 7 million pounds of profits.

Cadbury, which also makes Halls cough sweets, Trebor mints and Clorets breath fresheners, suffered a tough first-quarter in Britain with profit hit by 12 million pounds due to a weak market and price discounting to clear high stocks after the implementation of a new IT system towards the end of 2005.

Stitzer expected growth this year to be weighed to the second-half led by new products like Dr Pepper Berries and Cream, and also long-lasting Stride chewing gum.

Cadbury shares have suffered since hitting a high of 595p in late March due to fading takeover and break-up talk, and then a cautious trading note given at its May annual general meeting, bringing an end to a rise from 300p since March 2003.

The shares have underperformed the DJ Stoxx European food and beverage index by nearly 15 percent over the last year.

Cadbury shares trade 13.7 times 2007 forecast earnings, ahead of Unilever Plc/NV, which is struggling with sluggish sales, on 13.1, but trail Nestle on 14.2 and Danone on 18.0, according to Reuters Estimates.

Cadbury will publish its half-year results on Aug. 2.

REUTERS CS PM1405

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