Bottom Line: UB soothes transatlantic troubles

PROMISING news on Christmas trading and new year restocking from Cadbury Schweppes last week was confirmed yesterday by United Biscuits, the McVities and KP nuts group. But the 2.5 per cent increase in UB's share price was a reaction more of relief than of joy.

Overall results were far from palatable. Pre-tax profits fell 18 per cent to pounds 162.5m and the dividend stays at 15.3p, a dull performance for a leading food manufacturer.

The problem, by now well known, was UB's North American operation Keebler, whose traumas were first revealed at the halfway stage. Keebler faced an uphill struggle against weak consumer spending and the marketing power of Nabisco, the market leader. Operating profit slumped 60 per cent to pounds 26.2m. In efforts to maintain market share, profit margins were slashed from 6.6 to 2.5 per cent.

New management at Keebler in the shape of ex-McVities managing director Brian Chadbourne will, one hopes, mean the US performance will not be repeated.

There is a new strategy as well, concentrating more on profit than volume. The aggressive price-cutting policy was at best counter-productive. Sales advanced 7 per cent but a side effect of the old approach was that Keebler bore the cost of taking back stock that had passed its sell-by date.

Money has been saved in the US by shutting a factory in California, promotions will be targeted and stock returns reduced. The efficiency drive, coupled with a contribution from Bake-Line, the US biscuit business, means its US operation should return to 1991 profitability in 1994. Sir Robert Clarke, chairman, said: 'Keebler will make a good bounce back in profits.'

Elsewhere the picture is getting brighter. McVities, the chocolate Hob-nobs business, lifted sales and profit by 5 per cent. Against a background of recession the record at KP nuts and crisps was equally impressive.

The other source of unease about UB - debt - has also been allayed, at least for the moment. Gearing was moving worryingly near 100 per cent with the pounds 271m outlay on a new year acquisitions spree.

However, the sale of Terry's chocolate to Phillip Morris earlier this month for pounds 220m has brought debt back to manageable proportions. However, UB has made an offer for Royal Brands, the Spanish biscuit business, for perhaps pounds 60m. And, while UB management swears otherwise, there are fears that UB will find more 'irresistible' opportunities and debt will climb again.

United Biscuits seems to be back on track, but the shock of Keebler seriously undermined stock market confidence. On pre-tax profits of pounds 205m this year the shares, up 10p at 398p, are trading at 14.5 times projected earnings per share, bang in line with the market. It will take more than one set of results to persuade investors that UB shares are worth any more.