Britain's Cadbury Schweppes Plc said 2007 confectionery sales and margins would be higher than expected due to a recovery in its UK chocolate business and strong growth in US chewing 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 after the group had previously expected flat margins for the year.
"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 an end of year trading statement. He said the recovery in growth was led by the re-launch of its Wispa bar and its advertising featuring a drum-playing gorilla in the UK and was helped by growth in Trident gum.
Trading also benefited from a weak 2006 comparison due to hot summer weather and a salmonella-related product recall.
US 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.
Credit Suisse analyst Charlie Mills said the trading performance was very close to his estimates and he anticipated a seven percent growth in confectionery sales for 2007. Cadbury shares were 0.1 percent down at 639-1/5 percent by 0830 GMT in a slightly lower London stock market.
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 revenue growth of 4-5 percent and an increase in underlying operating profits.
Cadbury decided in October it would focus on demerging its 7-billion pound ($14.3 billion) North American soft drinks business and list it in New York after a world credit squeeze in the summer derailed a lucrative sale to private equity buyers.
Yesterday, Cadbury said US 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.
Stitzer did not comment directly on Peltz's action, except to say that he was not a surprised that people looking for value were investing in Cadbury's shares.