Cadbury to spin off US drinks business as market share falls

Cadbury Schweppes's North American soft drinks business lost market share in the first quarter of this year, the company said yesterday as it gained shareholder approval to spin off the business.

The US beverage unit, which makes Dr Pepper, increased sales by an underlying 1 per cent but suffered a "modest" drop in market share. The drop was caused by a 4 per cent price rise in the first quarter, double the increase imposed by Coca-Cola and PepsiCo. Prices rose because of soaring costs for raw materials such as oil, aluminium for cans and corn syrup.

"The timing of this statement relative to the listing of the business cannot be considered helpful," Martin Deboo, an analyst at Investec Securities, said. Cadbury's intends to spin off the soft-drinks business as Dr Pepper Snapple next month to focus on confectionery.

The move was demanded last year by Nelson Peltz, the activist investor. New Cadbury shares are expected to start trading in London on 2 May, while shares in Dr Pepper Snapple will begin trading on 7 May.

John Sutherland, Cadbury's chairman, told shareholders at Cadbury's annual meeting in London that separating the businesses would cost Cadbury £265m.

The meeting was targeted by protesters opposing Cadbury's plan to close a plant in Keynsham, near Bristol, and move production to Poland with the loss of 500 jobs.

The company's shares fell 2.6 per cent to 563.5p, down 9.3 per cent this year, after it warned of a "challenging" economic outlook for the rest of the year. The food industry is facing an economic slowdown combined with soaring commodity prices. The price of cocoa, chocolate's key ingredient, has risen about 28 per cent in the past year.

The confectionery business reported a 7 per cent sales increase for the first quarter, the biggest jump for a decade. In the UK, sales rose 3 per cent but Cadbury lost Easter egg market share as it opted out of a price war.

Cadbury aims to increase confectionery sales by 4 to 6 per cent a year. It beat the target last year, helped by a television advertisement for Dairy Milk showing a gorilla drumming to "In the Air Tonight" by Phil Collins.

The ad helped revive sales after Dairy Milk and other bars were recalled because of salmonella poisoning in 2006.