Danone Dairy Growth Shrinks Amid Declines in Spain, France

Danone (BN), the world’s biggest yogurt maker, reported third-quarter revenue that missed estimates as declines in Spain and Greece caused the weakest growth in sales of dairy products in more than three years.

Revenue adjusted for acquisitions, divestments and currency swings rose 5 percent, the Paris-based maker of Activia and Actimel said today. That trailed the 6.1 percent average of 15 analysts’ estimates. The stock fell the most in 11 weeks.

Danone, which cut its profitability forecast June 19, said it has faced a “swift deterioration in consumption” in southern Europe “that has proven steeper than anticipated.” Sales of dairy products slid more than 10 percent in both Spain and Italy. The miss may mean the company will only narrowly meet its full-year target for adjusted sales growth of 5 percent to 7 percent, said Andrew Wood, an analyst at Sanford C. Bernstein.

“Danone might just limp over the finishing line,” Wood wrote in a report. The “fundamental” and “structural” issues faced by the European fresh dairy business “are more serious, and could take longer to repair, than previously believed.”

Regulators in Europe have barred dairy companies from advertising some purported health benefits of their products, making it “very difficult for Danone to justify a big price premium versus private labels,” Warren Ackerman, an analyst at Societe Generale SA, said in an e-mail to clients today. The results reinforce the view that “fresh dairy in Europe is a commodity - or rapidly becoming so,” Ackerman said.

Share Performance

The stock declined 3 percent to 47.33 euros after tumbling as much as 5.3 percent earlier in the day. Danone’s stock has risen 7 percent in 12 months.

Like-for-like sales at Danone’s fresh dairy products division rose 0.7 percent, the weakest growth since the second quarter of 2009. That missed estimates of 3 percent from Barclays Plc and 2.5 percent from Liberum Capital.

The growth was due entirely to higher prices, with the volume of dairy products sold falling 0.7 percent, Danone said.

“The dairy division again saw a negative volume momentum that was disappointing,” Marco Gulpers, an analyst at ING Bank NV in Amsterdam, said in a telephone interview.

The climate in Europe will “not be very different in 2013” to what it was in 2012, Chief Financial Officer Pierre- Andre Terisse said on a conference call with analysts.

“I would expect the same kind of weakness we have seen in both dairy and medical” in the fourth quarter, Terisse said in the call. The environment in Spain is “at the higher end of what we expected in terms of difficulties,” he said.

The situation in Italy is “very similar” to Spain, the CFO said. The company is working on managing price points and on ways to reduce the cost base in Italy, the CFO said.

The yogurt maker said in July it raised its stake in its Spanish unit for about 382 million euros ($501 million).

Danone reiterated its guidance for the year, saying the operating margin will probably narrow by 0.5 percentage points on a like-for-like basis. The company has “confidence” in the forecast, Terisse said on the call.

Third-quarter sales rose 9.3 percent to 5.26 billion euros.

To contact the reporters on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net; Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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