* Cadbury third quarter trading update due Oct. 21
* Analysts expect higher Kraft bid before Nov 9. deadline
* Cadbury not expected to make new comments on bid in update
By David Jones
LONDON, Oct 16 Cadbury CBRY.L, under siege
from a bid by Kraft KFT.N, will look to paint a picture of
growth at next week's update to try and see off the predator
with analysts focusing on sales, volumes and margin trends.
The world's second largest confectionery group issues a
third quarter update on Oct. 21 after rejecting a 10.2 billion
pound ($16.57 billion) bid proposal in early September while the
UK Takeover Panel has given Kraft until Nov. 9 to come up with a
Britain's Cadbury is not expected to say anything new on the
bid in its update but will look to bolster its defences with an
upbeat trading statement, but analysts say it may have limited
room and may only be able to reiterate its 2009 sales and margin
Many analysts believe Kraft will wait until after its own
third quarter results on Nov. 3 before increasing its bid, with
most saying it will have to offer 850 to 900 pence per share to
win Cadbury board approval and not turn to a hostile bid.
Kraft's cash and share offer initially valued Cadbury shares
at 745 pence, or 10.2 billion pounds, but the fall in Kraft
shares makes it worth 723 pence, against a Cadbury price 788
pence by 1205 GMT.
For current values based on the latest share prices, click
"We strongly believe that Cadbury shareholders should reject
any offer below 850p, particularly if it contains a high level
of equity... The current terms look ludicrously low to us," said
analyst Graham Jones at broker Panmure Gordon on Friday.
He expects Kraft to raise its offer to 800 to 850 pence with
the cash element of the bid increased to 400 pence from 300
pence, and expects Kraft to put the offer directly to Cadbury
shareholders if the Cadbury board does not recommend the offer.
A MATTER OF TIMING
Looking at the trading update, analysts say Cadbury may
struggle to give an upbeat tone as it will compare with a strong
third quarter last year, before the worst of the downturn hit
and ahead of price rises pushed through in the final quarter of
They point out that because big price rises were pushed
through in late 2008, it will be into 2010 before tough
comparisons fall away and growth will be easier to record, but
by then a Kraft deal may have been sealed.
"Of course it all shows that Kraft had its timing right with
its bid, trying to get it all wrapped up before Cadbury's growth
gets a boost from easier comparisons," said one analyst.
In July, Cadbury reported a 4 percent rise in underlying
sales and reiterated it will see year growth at the lower end of
its medium term 4 to 6 percent growth range, with most analysts
believing third quarter sales will again rise 4 percent.
This 4-percent half-year rise was made up of 6 percent from
higher prices and a 2 percent decline in volumes, so any
improvement in volume in the third quarter will be closely
watched, they added.
First-half growth was led by a 10 percent rise in chocolate
sales while gum and candy were flat, and analysts see slower
chocolate growth and returning growth for gum and candy in the
new quarter, which is key as gum and candy have higher margins.
"I would say anything better than 4 percent sales, better
than flat volumes and increased margin guidance will be viewed
as positive by the market," said another analyst.
In July, Cadbury raised its margin guidance for 2009 to see
a 80 to 100 basis points percentage rise, towards its goal of
mid-teen percentage margins by 2011, after 11.9 percent in 2008.
When Kraft reports early next month, analysts expect
earnings to rise to 48 cents a share from 44 cents a year
earlier, according to Thomson Reuters I/B/E/S.
Kraft has cut costs and increased spending on advertising
and product development to help boost earnings, while the
stronger dollar and divestitures have held back revenue growth.
Analysts believe a joint counterbid from Nestle NESN.VX
and Hershey (HSY.N) is possible rather than probable for
Cadbury, so their third quarter results will be examined when
both report quarterly earnings on Oct 22. [ID:nLF423345].
Analysts expect Hershey to report earnings on average of 68
cents a share, compared with 64 cents a year earlier, excluding
one-time items. They say price increases helped lift sales and
the company has also benefited from consumers trading down to
lower-priced candies from fine chocolates during the recession.
(Additional reporting by Bradley Dorfman in Chicago)
(Reporting by David Jones; Editing by Hans Peters)