The world is fast turning sour for confectionary and drink company Cadbury Schweppes
In the meantime, as most of you probably know, the company markets a host of drinks under such brand names as Dr. Pepper, Schweppes, 7 Up, Mott's, Hawaiian Punch, and Snapple. Its chewing gums, milk chocolate bars, breath fresheners, and cough drops reach consumers under a host of similarly recognizable names, including Halls, Chiclets, Clorets, Trident, and Sour Patch Kids.
London-based Cadbury's net profit for the quarter plummeted to 182 million pounds (US$368.5 million), from the 822 million pounds (US$1.7 billion) in the same quarter of 2006. But that takes into account two discontinued businesses: the Europe, South Africa, and Syria business it sold and the Americas beverage segment it is separating from results. Nevertheless, the profit slide from the continuing business hasn't sat well with shareholders, who've taken 20% off the share valuation since June.
It really doesn't matter which companies you stack up as comparatives to Schweppes; most did relatively well in the quarter. For instance, PepsiCo
Cadbury Schweppes' woes, which include an operating profit margin more than 50% below a mid-teens target, are being worsened by the emerging credit pullback, which may thwart management's plan to raise cash through the sale of the drinks business. The sector once seemed to be worth 7 billion pounds-8 billion pounds. But with financing now harder to come by, some observers think that number may now be down to 6.5 billion pounds (US$13.2 billion). One alternative to a sale -- which I believe is far less desirable, because it wouldn't meet the objective of a cash raise -- is a simple spin-off of the unit.
So in Cadbury Schweppes, we clearly have a company in need of far more than a cough drop. And while calling the situation chaotic might be a trifle strong, I'll nevertheless drink to any notion my Foolish friends have of putting this one near the top of their "avoid" lists.
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Coca-Cola is an Inside Value recommendation. Wrigley is an Income Investor selection. Both market-beating newsletters are available for a free 30-day trial.
Fool contributor David Lee Smith doesn't have positions in any of the companies discussed. He welcomes your comments or questions. The Motley Fool has a disclosure policy.
