2nd UPDATE: Cadbury Keeps Fiscal Year Target Despite 1Q Slowdown
April 30 2009 - 5:17AM
Dow Jones News
U.K. confectioner Cadbury PLC (CBY) reiterated its full-year
revenue target Thursday despite reporting a sharp slowdown in sales
in the first quarter, driven by a combination of customers
destocking inventory and weakening demand in North America and
Europe.
The maker of Cadbury chocolate and Trident gum said sales
excluding acquisitions, disposals and currency movements - a
closely watched performance measure - rose just 2% in the first
quarter, compared with a 7% rise for the 2008, marking its lowest
quarterly growth rate for three years. The weak U.K. currency meant
actual revenue was 11% higher, however.
Despite the slowdown the company reiterated its target to grow
underlying sales at the lower end of its 4%-to-6% range in
2009.
"A strong chocolate performance and good growth in emerging
markets were partially offset by customer destocking and softer
demand in North America and Europe," said Chief Executive Todd
Stitzer in a statement.
Revenue in Europe fell 8% while the North America division saw a
6% fall in sales.
Investec analyst Martin Deboo described the performance as a bit
disappointing. "The market will be a bit concerned about the
slowdown in the U.S. - particularly in gum," he said, noting that
until recently, gum was Cadbury's key growth driver.
The sluggish sales growth disappointed the market and by 0800
GMT, the company's share traded down 15 pence, or 3%, at 493
pence.
Industry consultant James Amoroso was unconcerned. "1Q, 2009 was
always going to be unusually weak, with all the unusual trade,
consumer and economic factors in play," he said.
Cadbury's sales were hit by destocking of its products by its
retail and wholesale customers as they sought to conserve cash.
Destocking has been a feature for most consumer goods companies
during the credit crunch.
Volumes were actually 3% down in the quarter, with the 2% sales
growth entirely driven by a 5% increase in average price and
mix.
"Destocking particularly in the U.S. and Canada had a
significant impact on volumes," Stitzer told reporters. He added
that most of this destocking was now over.
"We consider 2% a good start for the year," said Stitzer.
Without the destocking sales would have been up 4%, with volumes
down just 1%, he said.
"We absolutely can live with that on a short to medium term
basis," said Stitzer. "We're not worried about volumes."
"Destocking is a real one-time event," said Chief Financial
Officer Andrew Bonfield. Around 75% of the destocking issue was the
result of one U.S. distributor halving the number of days it holds
Cadbury stock for, he said.
Bernstein analyst Andrew Wood pointed out, however, that this
significant destocking was not mentioned as an issue in recent
updates by rivals Hershey Inc. (HSY) or Nestle SA (NESN.VX).
The company is also aiming to grow its margins to the
"mid-teens" by 2011. In 2008, margin grew 180 basis points to
11.9%. The company said Thursday that margins had improved in the
first quarter.
Stitzer would not give a figure for the margin improvement but
said it was in line with the company's expectations and that he was
comfortable with consensus expectations of 70-80 basis points
improvement for the year.
Company Web site: www.cadbury.com
-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com