Cadbury Schweppes, the world's largest confectionery group, posted a 9% rise in 2006 profits on Tuesday, towards the bottom of analyst forecasts, but the group said it had started 2007 with optimism. The maker of Dairy Milk chocolate, Trident gum and Dr Pepper drinks said it recovered its share in the British chocolate market after a salmonella-related recall while a mislabelling Easter egg error will have an "immaterial" financial effect.
The London-based group reported annual underlying pretax profit of 931 million pounds ($1.82 billion), near the bottom of analysts' forecasts that ranged from 929 million to 974 million pounds putting pressure on Cadbury's shares in early trade.
The salmonella scare and a Nigerian accounting scandal scarred 2006 for Cadbury but the group says it will invest in 2007 to reinvigorate the British chocolate market, and behind new launches of Trident and Stride gums and the nationwide launch of a new sports drink Accelerade in the United States.
"We start 2007 with optimism about the future and look to match our financial goals," said Chief Executive Todd Stitzer in a conference call after annual results.
But Cadbury shares slipped 1.1% to 570 pence in a slightly lower London market, after what some analysts described as an unimpressive year in 2006.
"The results are disappointing, at the bottom end of expectations, and Cadbury is investing heavily which is good for the long-term but it is going to hurt in the short-term," said one industry analyst.
Cadbury's salmonella scare and its financial loss in Nigeria soured the year and group underlying sales growth was just 4% in the middle of its 3-5% goal range.
Underlying operating margins were flat before one-off effects like the 30 million pound cost of the salmonella recall. The group aims to increase operating margins over time after it abandoned any specific target towards the end of last year.
Stitzer said its U.K. chocolate market share returned to 34% at the end of the year, similar to the start of the year, and was 10 percentage points ahead of privately owned Mars and nearly twice that of Swiss-based Nestle.
The group added that it is seeing increasing costs in its beverage operations in 2007, particularly sweetener costs, but expects energy costs to abate somewhat during the year.
The group, which also makes Halls cough sweets, Trebor mints and Bubblicious bubblegum, proposed a full-year dividend of 14 pence/share, up 8% on 2005's payout.
Cadbury's problems have led its shares to underperform the FTSE 100 index by 7% and the DJ Stoxx European food and beverage index by 11% over the last 12 months, but they recovered from a low of 492-1/2p in June.
Market talk of a private equity bid or a bid from the likes of Kraft Foods or Hershey has helped support Cadbury's shares recently, analysts say.