Drinks sale uncertainty hit Cadbury
Cadbury, the world’s biggest confectionery maker, reported a drop in first-half profitability amid rising dairy prices and said the sale of its North American soft drinks business was still in the balance.
By Agencies |
LONDON: Cadbury, the world’s biggest confectionery maker, reported a drop in first-half profitability amid rising dairy prices and said the sale of its North American soft drinks business was still in the balance.
Shares in the maker of Dairy Milk chocolate and Trident gum fell as much as 8 percent in early Wednesday trading.
Cadbury said last week it was postponing the sale of its North American soft drinks business, whose brands include Dr Pepper, 7UP and Snapple, because of turbulent debt markets.
The British firm said on Wednesday that a sale was still its preferred option and that interest from potential buyers remained strong, but that it was also now “fully prepared” to demerge the business if debt market conditions do not improve.
Cadbury unveiled plans in March to split in two and focus on confectionery and said last month it would axe 7,500 jobs as part of a cost-cutting drive to lift profit margins towards those of its US confectionary rivals.
The firm declined to say how long it would wait before pursuing a demerger of its North American drinks unit, but analysts said hopes were fading the business would fetch initial estimates of as high as 8 billion pounds ($16.3 billion).
Cadbury said margins were hit by heavy investment behind its entry into the UK chewing gum market, as well as a recent rise of about 20% in the cost of dairy products.
Chief Financial Officer Ken Hanna said rising dairy prices could add 30-40 million pounds of costs this financial year, but that Cadbury was suffering less than rivals that use milk powder, whose price has risen about 50% in recent weeks.
Chief Executive Todd Stitzer told reporters that Cadbury’s investment drive was bearing fruit and said its confidence in the future was underlined by a 22% rise in the interim dividend to 5 pence a share.
But he also said margins were unlikely to improve in the second half of the year and the firm, which recalled more than 1 million chocolate bars in the UK and Ireland last year after a salmonella health scare, said its total share of the UK confectionery market fell 120 basis points.
Cadbury said underlying operating profit fell 6% to 180 million pounds ($366 million) in the six months to June 30 as a weaker US dollar offset a 6% rise in revenues.
The figure excludes the North American drinks business, which Cadbury said was trading in line with its expectations.
Industry sources have said the auction of the North American drinks unit has attracted two private equity teams — Blackstone Group, Kohlberg Kravis Roberts and Lion Capital on the one hand, and Bain Capital Partners, Thomas H. Lee Partners and TPG on the other.
Shares in the maker of Dairy Milk chocolate and Trident gum fell as much as 8 percent in early Wednesday trading.
Cadbury said last week it was postponing the sale of its North American soft drinks business, whose brands include Dr Pepper, 7UP and Snapple, because of turbulent debt markets.
The British firm said on Wednesday that a sale was still its preferred option and that interest from potential buyers remained strong, but that it was also now “fully prepared” to demerge the business if debt market conditions do not improve.
Cadbury unveiled plans in March to split in two and focus on confectionery and said last month it would axe 7,500 jobs as part of a cost-cutting drive to lift profit margins towards those of its US confectionary rivals.
The firm declined to say how long it would wait before pursuing a demerger of its North American drinks unit, but analysts said hopes were fading the business would fetch initial estimates of as high as 8 billion pounds ($16.3 billion).
ADVERTISEMENT
“Protracted uncertainty is not great news for the share price,” Panmure analyst Graham Jones wrote in a research note, adding that forecasts for the drinks sale had now fallen to around 7 billion pounds. “The drinks process is a concern,” said another analyst, who declined to be named. “But I think the new thing today is the margins. I was expecting flat (underlying) margins and they’ve come in down 30 basis points.”Cadbury said margins were hit by heavy investment behind its entry into the UK chewing gum market, as well as a recent rise of about 20% in the cost of dairy products.
Chief Financial Officer Ken Hanna said rising dairy prices could add 30-40 million pounds of costs this financial year, but that Cadbury was suffering less than rivals that use milk powder, whose price has risen about 50% in recent weeks.
Chief Executive Todd Stitzer told reporters that Cadbury’s investment drive was bearing fruit and said its confidence in the future was underlined by a 22% rise in the interim dividend to 5 pence a share.
ADVERTISEMENT
“I’m delighted with the (UK) gum launch which has exceeded our expectations,” he said on a conference call, adding that juice-centred Trident Splash and long-lasting Trident Soft had captured over 10% of a fast-growing UK gum market.But he also said margins were unlikely to improve in the second half of the year and the firm, which recalled more than 1 million chocolate bars in the UK and Ireland last year after a salmonella health scare, said its total share of the UK confectionery market fell 120 basis points.
ADVERTISEMENT
“(This) is a major concern in a market which will represent about 25% of revenues and an even higher proportion of profits going forward,” Investec analyst Martin Deboo said in a note.Cadbury said underlying operating profit fell 6% to 180 million pounds ($366 million) in the six months to June 30 as a weaker US dollar offset a 6% rise in revenues.
The figure excludes the North American drinks business, which Cadbury said was trading in line with its expectations.
Industry sources have said the auction of the North American drinks unit has attracted two private equity teams — Blackstone Group, Kohlberg Kravis Roberts and Lion Capital on the one hand, and Bain Capital Partners, Thomas H. Lee Partners and TPG on the other.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
