Cadbury Sticks to Forecasts as Candy Defies Recession

By Sarah Shannon

Feb. 25 (Bloomberg) -- Cadbury Plc, the world’s largest confectionery maker, said revenue growth this year will meet the lower end of its forecast and kept its goal for higher profit margins as chocolate and gum sales defy the global recession.

Cadbury rose the most in three months in London trading. Sales growth in 2009 will be “around the lower end” of the company’s 4 to 6 percent target range, the maker of Trident gum and Wispa chocolate bars said today. Cadbury repeated its target for “mid-teen” growth in profit margins by 2011.

Sales have held up as consumers from Asia to the U.K. and Ireland continue to buy “affordable treats,” Chief Executive Officer Todd Stitzer said on call with journalists. Cadbury last year spun off its U.S. soft-drinks division and sold its Australian beverages unit, transforming itself into a dedicated candy maker. Profit from continuing operations more than doubled in 2008, and rose 35 percent on a so-called underlying basis.

“We were impressed with Cadbury’s guidance for 2009 as it showed a confidence in the business we have not really seen out of management in the past,” Sanford Bernstein analyst Andrew Wood said in a report. He rates the stock “outperform.”

Cadbury rose 20 pence, or 3.9 percent, to 528.5 pence in London trading. The stock has fallen 13 percent in 2009, more than competitor Nestle SA’s 7.6 percent drop.

Excluding currency movements, sales in 2008 rose 6 percent to 5.4 billion pounds from 4.7 billion pounds a year earlier.

Increased Margins

“It’s a very good first year as a focused confectionary company,” said Martin Deboo, an analyst at Investec Securities with a “hold” recommendation on the stock. “The fact that margin progression has been achieved despite increased investment in marketing will read well.”

The underlying profit margin widened by 1.8 percentage points to 11.9 percent in fiscal 2008, boosted by the weakness of the pound against currencies in which sales are made.

The rising cost of cocoa, which increased 40 percent last year, has been recovered through price increases, Stitzer said. Price rises will only be “modest” this year if commodity expenses continue to increase, he said.

“We are recession-resilient, not recession-proof,” Stitzer said. “2008 has demonstrated the resilience of the total confectionary model, but we don’t expect to be immune from economic weakness.”

Refinancing Plan

Cadbury said today that it plans to refinance a 1 billion- pound revolving credit line “well in advance” of the March 2010 expiry date. Net debt at the year-end was 1.9 billion pounds, down from 3.2 billion pounds at the end of 2007.

Net income fell 10 percent to 364 million pounds ($529 million), from 405 million pounds in 2007. Profit from continuing operations rose to 370 million pounds from 149 million pounds, missing the 390 million-pound median estimate of seven analysts surveyed by Bloomberg News.

Cadbury agreed to sell its Australian drink business to Asahi Breweries Ltd. for 550 million pounds ($780 million) on Dec. 24. The company spun off its U.S. soft-drinks unit, Dr Pepper Snapple Group Inc., in May.

The candy maker plans to increase the final dividend to 11.1 pence a share from 10.5 pence, raising the payout for the year by 6 percent to 16.4 pence.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

Link to full article: Bloomberg