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Source: Reuters -
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Cadbury beat sales forecasts and raised targets in a bumper
third-quarter trading report, pushing up its shares and pressuring
suitor Kraft to come up with a bigger bid to win its takeover
battle.
The London-based confectionery group said underlying sales rose
seven percent in the July-September quarter, beating even the most
bullish forecasts, and unexpectedly increased both its sales and
margin growth targets for 2009.
Cadbury shares initially rose 1.2% to 808.95 pence, the highest
since its 2008 demerger, and well above Kraft's offer worth 726
pence.
But they drifted back to stand 0.3% up at 801 pence by 1000 GMT on
concern over lower marketing spend and a fall in volume
sales.
Analysts pushed their forecasts for a successful bid by Kraft for
the world's second largest confectionery group towards the top end
of their previous 850-900 pence range.
"We think this statement, plus confidence expressed about 2010 and
2011, significantly reduced the chance of Cadbury being acquired on
the cheap and as such we raise our target price from 860p to 900p,"
said Graham Jones at brokers Panmure Gordon.
Warren Ackerman at Evolution Securities said, "We think a
successful bid for Kraft may need to start with a nine rather than
eight".
After Cadbury's blowout performance he said Kraft may have to
increase the cash element of its bid to 500 pence from 300.
Cadbury has repeatedly rejected Kraft's 10.2 billion pound cash and
shares proposal made in early September and the UK Takeover Panel
has given Kraft a deadline of November 9 to come up with a firm bid
or walk away for six months.
Chief Executive Todd Stitzer gave an upbeat outlook as the group
returned to more normal growth rates and saw at least five percent
underlying sales growth in 2010 and 2011, but made no mention of
the proposed multi-billion pound bid from Kraft.
"We have the momentum and the growth," Stitzer told a telephone
briefing after the update, adding the group had delivered growth in
every category and business in the quarter.
Cadbury's trading was boosted by a sharp rebound in gum and candy
after seeing flat growth in the first half, with gum up four
percent and candy 11%, which helped to boost overall margins over
lower-margin chocolate sales.
Growth was helped by the launch of Trident Layers in the United
States in September.
Growth in chocolate, which accounts for nearly half Cadbury's
worldwide sales, slowed to seven percent from the first-half's 10%
but was supported by the launch of Wispa Gold bars in Britain and
growth in India and South Africa.
Some analysts pointed out marketing spend as a percentage of sales
fell to help margins and this could reverse in the fourth quarter
while third quarter volumes fell three percent meaning Cadbury had
to rely on price rises for its seven percent sale rise.
Most analysts had expected Cadbury to report four percent
third-quarter sales growth and hold its 2009 sales target at the
lower end of its four to six percent medium-term range and either
hold or slightly nudge up its annual margin target.
Kraft's takeover proposal of 40% cash and the rest in new Kraft
shares valued Cadbury shares initially at 745 pence or 10.2 billion
pounds ($22.3 billion), but the fall in Kraft shares makes it
currently worth 726 pence, over 70 pence below the current Cadbury
share price.
Analysts believe Kraft will wait until after its own third-quarter
earnings on November 3 before raising its bid.
Many analysts expect it to come back with an offer of at least 850 pence and more likely towards 900 pence, including half in cash, to win the backing of Cadbury's board and avoid a hostile bid.
