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Cadbury sees sweeter growth

Source: Reuters - Thu 30th Jul 2009

Cadbury, the world's second-largest confectionery group, met forecasts with a 24-percent rise in first-half profits as sweet eaters still opted for treats in the downturn while a forecast jump in 2009 margins helped push up the shares.

The British maker of Dairy Milk chocolate, Trident gum and Halls cough drops saw sales growth pick up after a slow first quarter, particularly in chocolate, with good growth in Britain and emerging markets such as India and South Africa.

Chief Executive Todd Stitzer said first-half chocolate sales rose 10 percent, helped by a record Easter egg season in Britain, while gum and candy returned to growth in the second quarter after suffering from destocking earlier in the year.

"These are tough times, but our products are those that people can afford and treat themselves even in a downturn" Stitzer told a half-year results briefing.

Chocolate sales in Britain rose 13 percent in the second quarter as the company gained from consumers staying at home in the downturn and eating more chocolate with its relaunched Wispa becoming the best-selling bar in Britain.

Cost cutting and cheaper recession-hit advertising rates prompted the group to raise its profit margin growth forecast for 2009 to see a 80-100 basis point percentage rise, up from its previous target of 70-80 basis points.

"For us, the underlying quality of the margin improvement is better than we expected and we think this will reassure the market that Cadbury's recovery is durable" said analyst Martin Deboo at Investec Securities.

This helped push up Cadbury shares by 0.7 percent to 569 pence by 2:30 p.m. after underperforming the FTSE 100 Index by 3 percent this year. The shares had traded as high as 640p in May 2008, just after the demerger of its U.S. soft drinks business. 

Analyst Andrew Wood at Stanford Bernstein said the results indicated that Cadbury can over-deliver versus expectations for growth in underlying sales, margins and earnings for 2009.

The London-based group posted a first-half pretax profit of 262 million pounds compared to analyst forecasts of 255-264 million pounds and a consensus of 260 million pounds, and after a restated previous figure of 212 million.

The half-year dividend rose 8 percent to 5.7p.

Cadbury held its 2009 target for sales growth at the lower end of its medium-term 4 to 6 percent range and also expects to make good progress towards its goal of mid-teen percentage margins by 2011, after posting 11.9 percent margins for 2008.

It reported underlying first-half sales rose 4 percent after just 2 percent in the first-quarter, putting second-quarter growth at 6 percent and well on track to meet year targets.

Finance Director Andrew Bonfield said he was holding the sales forecast for 2009 as the group faced tougher comparisons in the second half due to the relaunch of Wispa in October 2008 and big price rises taken in the final quarter of 2008.

However, he added the second half would be boosted by new products such as Trident Layers gum in the U.S. and the relaunched Caramel-flavoured Wispa Gold in Britain.

Cadbury shares have fallen 4 percent this year to trade at 16.3 times 2009 forecast earnings, performing better than Swiss Nestle, which reports next month, but worse than U.S.-based Hershey, which posted higher-than-expected quarterly profits last week. The world's largest confectionery group Mars-Wrigley is privately-owned.

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