LONDON (Reuters) - Cadbury Schweppes said confectionery sales and margins in 2007 will beat its targets due to a recovery in its chocolate sales, helped by a drum-playing gorilla advert, and strong growth in U.S. gum.
The world’s largest confectionery group added the planned demerger of its North American beverage business in the second quarter of 2008 was on track, while it was confident that price rises would help offset higher commodity costs.
The London-based company, maker of Dairy Milk chocolate, Trident gum and Halls cough drops, said confectionery sales growth will be above its medium-term target of 4-6 percent for 2007, while operating margins will see a modest rise from 2006’s 10.1 percent after the group previously expected flat margins.
“We are raising both guidance for revenue growth and margins for 2007,” Chief Executive Todd Stitzer said on a conference call after the group issued a trading statement on Tuesday.
He said the recovery in the UK was led by the re-launch of its Wispa bar and its advertising which featured a gorilla playing the drums along to Phil Collins’ song “In the Air Tonight”, as well as growth in Trident chewing gum.
Trading also benefited from a weak 2006 comparison due to hot summer weather and a salmonella-related product recall.
U.S. gum operations, including Trident and Stride, pushed market share to nearly 35 percent compared with 27 percent before Cadbury bought the business in 2003.
The group said increases of 5-6 percent in the input cost of dairy products, vegetable oils and cocoa would be offset by further price rises for customers.
Cadbury shares were 0.1 percent higher at 641 pence by 9:50 a.m. in a slightly lower London stock market. Cadbury shares slumped from an all-time high of 728p in May to 514p in August as hopes of a successful soft drinks sell-off faded, but since then they have been on a steady recovery path.
Credit Suisse analyst Charlie Mills said the trading performance was very close to his estimates and he anticipated a 7 percent growth in confectionery sales for 2007.
Andrew Wood at Bernstein said perhaps the most pleasing was the change in margin expectations from “flat at best” in August to a “modest improvement” implying strong growth in the second half after Cadbury reported a first-half 30 basis point fall.
Cadbury set out new medium-term targets in June this year 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.
Its North American Dr Pepper and 7Up drinks business outperformed the market and expects 2007 revenue growth of 4-5 percent and an increase in underlying operating profits.
Cadbury decided in October to demerge the 7-billion pound ($14.3 billion) business and list it in New York — to be called Dr Pepper Snapple Group — after a world credit squeeze in the summer derailed a lucrative sale to private equity buyers.
On Monday, Cadbury said U.S. activist investor Nelson Peltz raised his stake in the group to around 4.5 percent from 3.47 through his investment vehicle Trian, and sources said he had teamed up with Qatar Investment Authority to boost his stake.
In March, Peltz’s holding ticked above the discloseable 3 percent level and two days later Cadbury made a U-turn and said it had decided to demerge its soft drinks unit rather than its previous stance of saying it did not plan a demerger.
Stitzer did not comment directly on Peltz’s action, except to say that he was not surprised that people looking for value were investing in Cadbury’s shares.
Editing by David Cowell and Erica Billingham