Investors not sweet on Cadbury

Cadbury may have sold a lot more chocolate last year, but shareholders were left with plenty to chew on today...

Last Updated: 06 Nov 2012

Reporting its 2007 results, Cadbury said that confectionery sales were up by 7% - its best performance in a decade. Dairy Milk sales were boosted by its guerrilla Gorilla ad campaign (as was Phil Collins’ pop career, unfortunately), while its Trident chewing gum flew off the shelves, enjoying a 26% sales hike. So far, so good.

However, the bad news was that it’s surprisingly decided to cancel a proposed pay-out to shareholders when it spins off its US drinks business (soon to be renamed Dr Pepper Snapple Group) later this year. Apparently there won’t be enough cash left over. And it’s also admitted that it will have to put up the prices of its chocolate and chewing gum, to offset a rise in commodity prices. Coupled with another 2% drop in profits to £915m (which included a £30m loss on energy drink Accelerade), it’s no surprise that the City was underwhelmed by today’s results.

Cadbury tried to sugar the pill this morning by increasing its dividend (which will be 11% higher than last year) but investors clearly weren’t biting – its share price promptly slid more than 5% in early trading.

CEO Todd Spitzer was putting a brave face on it today, insisting that he was ‘encouraged by the good trading momentum we have seen in the new year and our continued progress on cost reduction initiatives’. He reckons Cadbury is still on course for ‘meaningful margin progression’ in 2008, despite the ‘uncertain’ economic outlook.

Still, news of the cancelled pay-out won’t please activist investor Nelson Peltz, who now controls 4.5% of Cadbury and has been pressurising management to buck up their ideas. He thinks the board should be returning more money to shareholders, not less – so Spitzer is likely to have another uncomfortable year. Particularly since Cadbury is about to become the only listed pure-play confectioner - which is likely to make it a tantalising takeover target.

But more importantly: how are we going to cover the extra cost of our Dairy Milk bars? Perhaps Phil Collins will be willing to make a contribution to our chocolate fund - surely it’s the least he can do...

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