Cadbury Schweppes first-half earnings fall 78%

by Eric Schroeder
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LONDON — Input cost increases, particularly in dairy products, contributed to lower first-half earnings at Cadbury Schweppes P.L.C. Net earnings in the six months ended June 30 were £182 million ($369.5 million), down sharply from £822 million in the same period a year ago. Year-ago results benefited from a one-time gain of £541 million from the sales of beverage businesses in Europe, Syria and South Africa, which more than offset costs arising from product recalls over Salmonella contamination.

Net sales in the first half of 2007 were £2,326 million ($4,721 million), up 1% from £2,296 million in the first half of fiscal 2006.

"First-half revenue growth was strong, driven by investment in brands, innovation and marketplace execution," said Todd Stitzer, chief executive officer. "We expect continued good revenue growth in the second half, while margins will be impacted by the combination of growth investment and higher input costs."

Operating income of the Americas region was £115 million, up 25% from last year. Sales were £651 million, up 2% from the first half of 2006.

"In the U.S., our gum market continued to grow strongly," the company said. "Our latest gum share is up … with our share reaching 35% compared to 27% when we acquired Adams in 2003. Growth was driven by Trident and Stride brands. Stride, which was launched in June of last year, now has a 5% share of the $3.9 billion U.S. gum market. Halls had a good first quarter due to strong growth in the market and weak 2006 comparatives."

Operating margins in the first half improved to 17.7%, versus 14.4% in 2006.

On July 27, Cadbury announced the sale of its Americas Beverages business was being extended as a result of "extreme market volatility." The company stressed that interest in the business is strong, and if market conditions do not stabilize the company is prepared to pursue a demerger process.

In an update on the Americas Beverages business, which is now classified as a discontinued business, Cadbury said the unit performed in line with expectations during the first half.

"While the carbonated soft drinks market had a challenging half, in part due to the poor summer weather, we continued to gain share," the company said. "We invested significantly behind new product launches in the first half, notably Snapple super-premium teas and Accelerade, a new sports drink. Base business revenues on a comparable basis were 5% ahead in the half year."

During the first half, Cadbury said it incurred exceptional, restructuring and other charges of £53 million, including £34 million of restructuring costs related to cost-reduction initiatives in the continuing confectionery business.

Looking ahead to the full year, Cadbury announced the remainder of 2007 "will be a year of significant re-investment in growth behind a number of larger initiatives, including the launch of gum and the revitalization of our chocolate business in Britain, and the expansion of Stride in the U.S."

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