On February 2 2010, Cadbury was acquired by Kraft Foods (KFT). As such, this article contains outdated information and should be used only as a historical reference.
Like its confectioner competitors, CBY suffers from rising commodities prices for ingredients such as corn, sugar, and milk. From 2006 to 2007, CBY raw material costs increased 10.9%, causing CBY operating margins to decrease from 14.4% to 13.2%. In response, management says it will reduce 15% of its manufacturing and distribution centers by 2011 and has divested its Americas Beverages segment. Management says the divestment will save CBY an estimated $66 million in 2008.
CBY operates in four main segments:
The BIMA region is the largest confectionery region in terms of revenue. It mainly comprises chocolate businesses in the UK, Ireland, South Africa and Nigeria, but also includes market leading gum businesses in South Africa and Egypt.
The Europe segment includes businesses in Western and Eastern Europe (including Russia and Turkey), excluding the UK and Ireland. It sells candy and gum, with the only significant chocolate businesses in Poland, Russia and France.
Gum is sold under the Trident brand in Spain, Portugal and Greece, and under the Stimorol and V6 brands in Switzerland, Denmark, Belgium and Sweden. Candy is sold under the Halls brand in Spain and Greece. Chocolate is sold under the Wedel brand in Poland, where CBY has a 15% market share.
CBY has businesses in the US, Canada, Mexico, Brazil, Argentina, Venezuela and Colombia. Approximately 54% of sales are in the US and Canada, with the remainder in Mexico and Latin America. Outside Canada, the region sells principally gum and candy. Four brands (Trident, Dentyne, Halls and the Bubbas) account for around 65% of revenue.
CBY leads the confectioners industry in total revenue and is second in market cap to Wrigley. From 2006 to 2007, CBY revenue increased 18.5%, total costs increased 33.3%, and net profit decreased 61.4%. According to the National Confectioners Association, the total U.S. candy market had $29.1 billion in retail sales in 2007 with $16.3 billion in sales for chocolate. In the past four years, CBY revenue growth (6%) has been higher than the confectioners industry revenue growth (5%).
Candy is in highest demand for holidays -- especially Halloween and Christmas. Consumers buy candy as gifts for holidays. Thus, confectionery companies rely on the competitive three month holiday season for most of their annual sales. While Hershey's, Mars, Nestle, and Tootsie Roll compete for places in children's Halloween bags and Christmas stockings, Cadbury makes products relevant to all four fiscal quarters. In 2007, CBY had 45.7% of sales in H1 (1/1/07 - 6/30/07) and 54.3% of sales in H2 (7/1/07 - 12/30/07). CBY produces the two most popular Easter candies -- Cadbury Creme Eggs and Milk Chocolate Eggs. In the UK, Cadbury Creme Egg is the most popular (unit sales) chocolate single between January & Easter. Also, CBY owns a leading gum brand (Trident) and leading cough drop brand (Halls). From 2006 to 2007, CBY gum sales increased 26%, boosting CBY total revenue 7%.
Sugar and corn for corn syrup are CBY's highest volume commodities, as corn syrup and sugar are key ingredients in its products. Milk is also an ingredient in CBY products, particularly Cadbury milk chocolate. Unfortunately for all confectionery companies, corn, sugar, and milk prices have increased in the last decade. From 2006 to 2007, corn prices increased approximately 52%, milk prices increased over 50%, and sugar prices increased 20.7%. CBY raw material costs increased 10.9% from 2006 to 2007. In that time period, CBY operating margins decreased from 14.4% to 13.2%. In response, CBY management says it will close 15% of its manufacturing and distribution centers by 2011.
|Competition||Cadbury plc (CBY)||Tootsie Roll Industries (TR)||Rocky Mountain Chocolate Factory (RMCF)||Hershey Foods (HSY)||Wm. Wrigley Jr. Company (WWY)||Imperial Sugar Company (IPSU)||Cosan Limited (CZZ)|
|Market Cap $Mil||16,960.00||1,310.00||57.80||7,500.00||21,100.00||186.88||2,640.00|
|Gross Profit $Mil||3,927.00||186.67||13.70||1,631.97||2,853.85||104.95||487.80|
|Net Profit Margin %||5.11%||10.37%||15.56%||4.33%||11.73%||4.97%||20.83%|
|Operating Margin %||9.89%||14.24%||24.83%||9.28%||17.87%||6.14%||13.87%
|Competition||Cadbury plc (CBY)||Mars||Nestle (NSRGY)||Wrigley (WWY)||Hershey (HSY)||Kraft Foods (KFT)||Ferrero|
|Global Confectionery Market||10.1%||8.9%||7.7%||5.5%||5.5%||4.3%||4.2%|