Cadbury says early Easter, price cuts limit growth

Analysis

Cadbury Schweppes, the world's biggest sweets group, said an early Easter and a price war hit UK sales of chocolate eggs, souring its global growth and depressing its shares.

The British group, which plans to spin off its North American drinks unit next month, said its confectionery sales grew 7% in the first quarter of 2008, but its British sweet sales rose just 3%.

Chief Executive Todd Stitzer said hefty price discounts of chocolate eggs by rivals over Easter had trimmed British growth by 2% points and an early Easter in March helped trim another point off British growth.

“Overall, Britain had a very good first quarter, but there were a number of one-off factors with an early Easter leading to a 2-3 week shorter selling period and price discounting,” Stitzer told a briefing after a first-quarter trading update.

Cadbury shares dipped 1.3% to 571 pence. Some analysts had expected stronger growth of around 8% after very strong second half in 2007.

“While the overall delivery is respectable, we have to confess that overall this is not quite as strong a start to the year as we had anticipated, said analyst Jeff Stent at Citi.

Its North American Dr Pepper drinks unit saw revenue growth of just 3% in the first-quarter and only 1% on a like-for-like basis in a very competitive market which analysts said raised some questions for its performance over the year.

The group added it was confirming its previous 2008 guidance for revenue growth at the two businesses and said the demerger process for its North American drinks unit was on track.

Cadbury - which makes Dairy Milk chocolate, Trident gum and Halls cough drops - held to previous guidance that it expects confectionery sales to grow at the upper end of its 4%-6% target range in 2008 after a 7% rise in 2007 and expects “meaningful” operating margin progress in 2008 from 2007's 9.8% towards its mid-teens percentage target by 2011.

Cadbury expects beverage revenue growth of between 3% and 5% in 2008, after revenues rose 4% in 2007, and modestly lower underlying margins in 2008.

Last October, Cadbury decided to spin off its North American drinks business, Dr Pepper Snapple Group (DPSG), which is to be listed in New York on May 7, while the standalone confectionery business, Cadbury Plc, will trade from May 2 in London.

Under the demerger, shareholders with 100 Cadbury Schweppes shares will receive 64 shares in Cadbury and 12 in DPSG.

Cadbury issued the first-quarter trading update ahead of a court meeting and general meeting for shareholders to approve the demerger, which will be immediately followed by the group's annual general meeting. (Reuters)

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