Sector News

Danone eyes profit rise in volatile markets

February 24, 2016
Food & Drink

Cost cuts, rising baby food sales in Asia and an improvement at its dairy business in Europe will help Danone (DANO.PA) to deliver higher sales and profits this year despite volatile emerging markets, the French food group said on Tuesday.

Shares in the maker of Activia and Actimel yoghurt rose more than 3.5 percent as analysts expressed relief after recent downbeat comments from rivals such as Unilever and Nestle.

“The guidance looks prudent and achievable, enabling Danone to generate sustainable profitable growth in 2016 and beyond” Liberum analysts said, reiterating a “buy” rating on the stock.

Danone, which also owns the Evian water and Bledina baby food brands, forecast underlying sales to rise 3-5 percent this year. They grew 4.4 percent to 22.41 billion euros ($24.74 billion) in 2015.

It also predicted a “solid” improvement in its operating margin, helped by an expected stabilization of sales at its European diary business which has suffered from the region’s sluggish economy.

Last year, Danone forecast a 4-5 percent rise in 2015 sales and a slight increase in operating margin.

“Economic conditions will remain volatile and uncertain overall, with fragile or even deflationary consumer trends in Europe, emerging markets undermined by volatile currencies, and difficulties in specific markets, in particular Russia, China and Brazil,” it said, echoing some of the caution of rivals.

Unilever has said it is preparing for tougher markets and more volatility in 2016, while Switzerland’s Nestle (NESN.VX) said it was getting harder to raise prices in a tough economic environment

Emmanuel Faber, who took over as CEO in October 2014, has vowed to return Danone to “strong profitable and sustainable growth” by 2020, reviewing its business in China and overhauling its dairy division where it has cut costs and launched new products.

Sales of dairy ranges, which make up the bulk of the group total, grew 2.6 percent in the fourth quarter, beating expectations of a 2 percent rise, driven by accelerating sales in the United States and improving volumes in Europe.

The water division was a weak spot, however, with growth easing to 1.9 percent in the fourth quarter as a slowing non-alcoholic beverage sector in China forced Danone to cut inventories of its Mizone drink. The adjustment is expected to continue in the first half of 2016.

Danone’s operating margin gained 17 basis points like-for-like in 2015 to 12.91 percent, in line with the company-compiled consensus of analysts’ expectations of 12.93 percent.

At 1200 GMT, its shares were up 3.55 percent at 36.07 euros.

($ = 0.9060 euros)

By Dominique Vidalon (Editing by James Regan and Mark Potter)

Source: Reuters

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