Cadbury PLC ADRCBY

Morningstar Rating

Stock Research and Analysis

by Erin Swanson, CFA

Although we have been encouraged by Cadbury's efforts to trim more fat from its cost structure, the global confectionery firm's track record of generating targeted margin expansion goals is less than pristine. We believe this poor performance had cast Read more

Bulls Say

We believe the firm has a substantial opportunity to trim excess fat from its operating structure and enhance profitability. Even after its cost-reduction program, Cadbury remains more inefficient than its global peers.

Cadbury is a leading player in the worldwide confectionery industry with 10.5% global share. The firm competes in all three segments of the market: chocolate, sugar, and gum.

Private-label competition is minimal in the confectionery industry, as these firms only control about 5% of the market.

Nearly 40% of Cadbury's confectionery sales result from faster-growing emerging markets. Read more

Bears Say

Given the economic weakness in Cadbury's more mature markets, such as the U.S. and U.K., as well as the impact that slowing growth in the Western world could have on emerging and developing markets, we believe Cadbury's growth could come under pressure.

Escalating commodity costs are a persistent issue for all packaged-food firms. Cadbury expects its input costs to rise 6%-8% in 2009, particularly because of higher cocoa prices.

Cadbury failed to deliver on 50-75 basis points of annual margin expansion during its cost-reduction program.

If Kraft's bid for Cadbury somehow falls through, Cadbury's stock price would likely decline, and we would lower our fair value estimate to a stand-alone valuation.

Our fair value estimate will fluctuate with the British pound per U.S. dollar exchange rate. Left unhedged, a depreciation in the British pound will lower the value of a dollar-denominated investment in the firm's American depositary receipts. Read more

Strategy

Cadbury's primary objective is to drive margin gains by improving the efficiency of its business. To achieve this, the firm is reducing stock-keeping units and scrapping 15% of its manufacturing and Read more

Management

Todd Stitzer is the CEO at Cadbury, while Roger Carr assumed the chairman role in July 2008. In our opinion, the separation of these roles between two individuals is a positive. We also believe that Stitzer's experience of more than 20 years at the Read more

Profile

Cadbury operates as a leading competitor in the global confectionery market, with product lines spanning the chocolate, candy, and gum segments. The firm distributes its Read more

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