Cadbury Schweppes in US drinks profit warning

By Chris Mercer

- Last updated on GMT

Related tags: Cadbury schweppes, Soft drink

Cadbury Schweppes has hit stormy waters in the US, warning it will
fail to hit profit targets as higher costs and the bankruptcy of a
bottler conspire to foil the group's US revival.

The group said that high oil prices plus hurricane-related disruption had significantly increased the firm's costs for both transport and PET resin in the second half of 2005.

To make things worse, one of Cadbury Schweppes' major US bottle suppliers filed for bankruptcy in August, leading to "significant price increases for glass bottles"​.

The news is a blow to the firm after it had fostered a relatively strong resurgence in US carbonated soft drinks in the first half of this year.

Sales of Cadbury's US carbonated soft drinks grew four per cent in the first half, building on a 2.3 per cent rise in 2004 after three years of mounting declines. Cadbury has also out-performed its rivals in fizzy drinks this year with Coca-Cola reporting 1.3 per cent growth and both PepsiCo and Cott losing sales.

Cadbury's non-carbonated portfolio had also jumped forward from one per cent sales growth at the start of 2004 to four per cent in 2005.

The group has decided to hang on to its US beverages division, including Dr Pepper, Sunkist and 7 Up, despite putting its stagnant European drinks business up for sale at the start of September.

Julian Lakin, analyst at Pereire Tod​, recently told BeverageDaily.com​ that the business had a good cash flow and could be used as a "cash cow"​ to generate investment funds for the confectionery division.

The US soft drinks market is fairly tightly sewn up between Coca-Cola, PepsiCo and private label suppliers like Cott, offering few growth opportunities to Cadbury Schweppes.

Yet, Lakin said Cadbury had steadied itself on the market and was "holding its own reasonably well"​.

Cadbury said in its trading statement that "we are making good progress on cash flow, and expect to see a significant increase this year"​.

The group will hold an investor seminar in Texas on 10 and 11 October to discuss its US performance.

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