Cadbury lifts outlook, raising bar for Kraft bid

[October 21, 2009]  LONDON (AP) -- British chocolate and gum maker Cadbury PLC on Wednesday upgraded its outlook as it reported a 7 percent rise in third-quarter revenue -- proof, it said, that it does not need to be taken over by a conglomerate like Kraft to deliver results.

Cadbury, which has rejected a takeover approach from Kraft Foods Inc., said it expected full-year revenue growth to be in the middle of a range between 4 and 6 percent. In a report on July 9, the company had forecast revenue growth at the lower end of that range.

Cadbury also forecast an improvement of 1.35 percentage points in its profit margin for the year, up from earlier guidance of a 0.80 to 1.00 percentage point increase.

"This puts the ball firmly back in Kraft's court, and is exactly what Cadbury shareholders would have hoped for," said Graham Jones, analyst at Panmure Gordon & Co. He called the third-quarter update "hugely impressive."

"We think this statement, plus confidence expressed about 2010 and 2011, significantly reduces the chance of Cadbury being acquired on the cheap and as such we raised our target price from 860 pence to 900 pence," Jones said.

Some analysts noted that another consumer products conglomerate, Unilever, could make a rival offer.

Cadbury shares were up 0.1 percent at 799.5 pence in early trading on the London Stock Exchange

However, Martin Deboo, analyst at Investec Securities, was less enthusiastic. He said the guidance upgrade was not overly impressive and may be hard to sustain.

"For Cadbury to maintain their independence, they are going to need to convince the market that their improved FY 2009 momentum is more than just a flash in the pan and is indicative of what can be delivered in FY 2010 and beyond," Deboo added.

Kraft faces a Nov. 9 "put up or shut up" deadline set by London's Takeover Panel to make a firm offer for Cadbury or walk away for six months.

Kraft's initial approach, disclosed in September, valued Cadbury at $16.7 billion, or about 745 pence per share.

"We continue to take the view that Kraft may need to increase the cash element of its offer and probably raise the value of the total offer to (around) 850 pence per Cadbury share to stand a chance," Charles Stanley and Co. said in a research note circulated Tuesday.

Cadbury said third-quarter revenue from chocolate rose 7 percent on a constant currency basis, candy rose 11 percent and gum 4 percent.

Revenue from South America was up 18 percent and Asia-Middle East-Africa produced a 14 percent gain.

"The strength of our operating performance continues to underpin the Board's confidence in both our growth prospects and the potential for creating further, material shareholder value as a pure play standalone confectionery business," said Cadbury chairman Roger Carr.

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On the Net: http://www.cadbury.com/

[Associated Press; By ROBERT BARR]

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