UPDATE 4-Cadbury profits dip, shares slip on no cash return

(Adds news conference comments, updates shares)

By David Jones

LONDON, Feb 19 (Reuters) - Cadbury Schweppes (CBRY.L) shares fell sharply on Tuesday as the world's largest confectionery maker warned there will be no cash handout from its drinks demerger, after it missed analyst forecasts with a 2 percent fall in 2007 profits.

Cadbury also gave a cautious outlook for the North American soft drinks business to be spun off at the end of the second quarter, with profit margins down sharply in 2007 and unlikely to begin recovering until next year.

The London-based group had intended to return cash to shareholders on the demerger but has decided against this to preserve investment-grade ratings for both companies.

Cadbury shares slumped 4.7 percent to 583-1/2 pence, the FTSE 100's biggest loser, by 1500 GMT.

"There is unlikely to be a return of cash to shareholders as we have decided to maintain both companies on investment-grade ratings," Chief Executive Todd Stitzer told a conference call.

Finance Director Ken Hanna said that with credit markets weaker this year, the cost of putting more debt on the drinks arm was not worthwhile. The unit is to raise $4 billion to refinance old Cadbury debt and would need to raise another $2 billion to give a 50 pence-a-share return to shareholders, he added.

Cadbury decided last October to spin off its 7 billion pound ($13.7 billion) drinks business -- to be called Dr Pepper Snapple Group -- and list it in New York, after a world credit squeeze derailed a lucrative sale to private-equity buyers.

The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported 2007 underlying pretax profit of 915 million pounds, below an analyst forecast range of 922 to 936 million and a consensus forecast of 929 million pounds.

Cadbury is raising the 2007 dividend by 11 percent to 15.5p.

"While it is disappointing that there will be no return of capital following the demerger ... the focused confectionery business will see rapid earnings growth following both top-line growth and restructuring-driven margin advances," said analyst David Hallam at Evolution Securities.

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The company said its 2007 underlying confectionery sales rose 7 percent, the best for a decade and ahead of its medium-term target of 4-6 percent, due to a recovery in its UK chocolate sales, helped by a TV ad of a gorilla playing the drums, and strong growth in U.S. gum.

But its North American soft drinks side saw a 3.4 percentage point fall in margins in 2007 due to dilutive bottling acquisitions and a loss on the launch of its sports drink Accelerade. Another decline is forecast for 2008.