Cadbury Schweppes profit climbs 53%, but challenges weigh on results

by Eric Schroeder
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LONDON — Despite a 53% jump in profit during the year, fiscal 2006 results at Cadbury Schweppes P.L.C. were mixed.

Net earnings in the year ended Dec. 31 were £1,165 million ($2,276 million), up from £776 million in the same period a year ago. The year’s results benefited from a one-time gain of £600 million related to the sale of the company’s European soft drink unit. However, the company’s results were adversely affected by the cost of a salmonella recall, which occurred in June and cut revenues by between £30 million and £35 million and profit by between £5 million and £10 million. Cadbury also said it took a charge of £15 million due to overstatements in income from its Nigerian operation.

Further weighing on results was a £30 million charge related to a British fire insurance claim and £30 million in tax credits from a change in British legislation.

Net sales in the year were £7,427 million ($14,513 million), up 16% from £6,432 million in fiscal 2005.

Operating income of the Americas Confectionery business was £207 million, up 20% from £172 million last year. Sales were £1,330 million, up 8% from fiscal 2005.

"Gum revenue growth was strong in nearly all key markets, notably in the U.S., where results were outstanding with our share growing 300 basis points in a market that grew by 8%," the company said. "Flavor, packaging and format innovation on our main Trident brand and the launch of Stride in June were the key drivers of our share gain."

Operating margins in the year improved to 15.6%, versus 14% in 2005.

Americas Beverages also produced strong results. Operating profit of £584 million and sales of £2,566 million were up 11% and 44%, respectively, from fiscal 2005.

"In the U.S., our share of the carbonated soft drinks market grew by 60 basis points, the third successive year of share increases," Cadbury Schweppes said. "Volumes and shares were ahead for nearly all of our key flavor brands — Dr Pepper, Sunkist, A&W and Canada Dry. 7 UP volumes were down for the year as a whole, but ahead 7% in the second half following its reformulation and relaunch as 7 UP Natural. Dr Pepper volumes benefited from continued gains in fountain, particularly Diet Dr Pepper."

Cadbury Schweppes said the integration of Dr Pepper/Seven Up Bottling Group is proceeding well.

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