Cadbury drops profit target, prepares to enter UK gum market

Cadbury Schweppes PLC, the world's largest confectionery group, Monday dropped its forecast for growth target for operating margin but did not move from its current revenue-growth target of between 3 and 5 per cent for 2007 and beyond.

The London-based company abandoned its previous specific target saying that over time it would increase operating margins without specifying increments. The growth in operating margins is planned to be brought through cost reduction and efficiency initiatives. The previous targets for growth in underlying operating margins were set between 0.5 and 0.75 per cent by Cadbury.

Cadbury Chief Executive Todd Stitzer said in a conference call, "The margin target made us too inflexible and we only narrowly missed it. What we want is a more flexible dynamic.”

The maker of Dr Pepper and Trident gum said that net income for last year came to be 6 per cent lower than earlier. Last year the net income was 585 million pounds (US$1.09 billion) down from the previously reported 622million pounds.

In a strategy to compete with the world's top gum group Wm. Wrigley Jr. Co, which has 98 percent of the UK market the company made an announcement to launch its Trident gum brand in the UK, scheduled for the first half of 2007.

Todd Stitzer felt that it would be premature to talk about margins for 2007, saying, “We saw an increase in commodity costs which, had this not happened, we would likely have achieved our margin goal ranges easily." He had last week said that underlying 2006 sales would grow around 4 percent while operating profit margins would be flat.

"Cadbury will miss its margin target for two years, so it was clear it would have to make the target more vague. Still they are holding the top-line target which gives some confidence for 2007 after recent disappointments," said one analyst.

Cadbury shares slipped 0.9 percent to 532 pence in a weaker London share market by 8:20 a.m.