Danone Revenue Growth Beats Estimates on Baby Nutrition

Danone (BN), the owner of Evian bottled water and Activia yogurt, reported second-quarter sales growth that beat estimates as the company sold more baby-nutrition products in China and dairy sales rose more than forecast.

Like-for-like revenue gained 6.5 percent from a year earlier, the Paris-based company said in a statement today. The median of 11 analysts’ estimates compiled by Bloomberg was 5.7 percent. Total sales increased 6.7 percent to 5.72 billion euros ($7.6 billion). Volume jumped 4.1 percent, the strongest gain in the past eight quarters, the company said.

“It’s certainly a good set of figures,” Jon Cox, head of European consumer equities at Kepler Cheuvreux in Zurich, said by phone. “Danone is the fastest-growing big food company in Europe at the moment and has a great portfolio, which is reflected in the numbers. I expect consensus expectations to move higher. Dairy is better than what the market expected.”

Sales of baby-nutrition products have surged in China as a spate of food-safety scandals has fueled frenzied demand for foreign formula. Bulk purchases by concerned mothers have opened the way for the top four international producers to control more than a third of the industry. Organic sales at Danone’s baby-nutrition unit rose almost 14 percent in the quarter, beating analysts’ estimates.

Photographer: Balint Porneczi/Bloomberg

Pots of Activia yoghurts, produced by Danone, are seen in Paris. Close

Pots of Activia yoghurts, produced by Danone, are seen in Paris.

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Photographer: Balint Porneczi/Bloomberg

Pots of Activia yoghurts, produced by Danone, are seen in Paris.

Organic, or like-for-like, sales exclude acquisitions, disposals and currency fluctuations.

Stock Jumps

Danone jumped as much as 3.7 percent to 59.58 euros, the highest intraday price since May 28, and was trading up 3.2 percent at 12:45 p.m. in Paris. The stock has gained 19 percent this year, valuing the company at 37.7 billion euros.

The company was among baby-formula producers targeted this month in a Chinese government price-fixing investigation. Danone announced within days that it would cut prices of all its Dumex-branded products by 5 percent to 20 percent. Mead Johnson Nutrition Co. (MJN) and Nestle SA (NESN) also said they’d reduce the amount they charged customers in the country.

“Ups and downs” in China won’t change the growth picture in the country, and Danone has “every reason to be positive,” Chief Financial Officer Pierre-Andre Terisse told analysts at a meeting in London today.

Russian Growth

Sales at Danone’s dairy division gained 2.6 percent on an organic basis as people ate more Greek yogurt in the U.S. and Prostokvashino products in Russia, offsetting weak demand in Europe. Danone is expanding its dairy business in Russia and the U.S. to make up for western European consumers switching to cheaper private labels in the debt-burdened region. The median estimate of nine analysts was for Danone to report dairy organic sales growth of 1.9 percent.

“Danone is off to a strong start in 2013 in an economic and consumption context that remains difficult in Europe, and in some cases volatile in emerging countries,” Chief Executive Officer Franck Riboud said in the statement. “In Europe, simplifying our model and reducing costs remain a priority.”

Argentina and Egypt are “difficult” markets among emerging economies, Terisse told analysts.

First-half operating profit as a proportion of sales, and excluding one-time gains or costs, narrowed 49 basis points from a year earlier to 13.3 percent as dairy prices were cut in Europe, Danone said.

Margin Forecast

The trading operating margin was in line with what the company forecast, even after input costs increased more than expected, Terisse said on a conference call with journalists. Danone will continue to reduce costs to “regain competitiveness in Europe,” the CFO said. The margin will improve in the second half of 2013, Terisse told the analysts.

Danone will work on stabilizing market share in Europe before pushing to return to growth, Terisse said. The company’s European dairy business is unlikely to grow in the second half, he said. At the same time, the unit’s market share is increasing in Portugal, and U.K. dairy “is doing well” as “an exception” in the region, Terisse said.

A stabilization or improvement of the company’s market share in European countries helped improve second-quarter volume growth in the region, Terisse said. Like-for-like volume declined 1.6 percent in Europe in the period, Danone said.

Danone will team up with coffee chain Starbucks Corp. (SBUX) to sell Greek yogurts in the U.S. starting next year, and it’s “positive” about Russian dairy consumption, Yves Legros, head of operations in Russia, told reporters in Moscow this month. Russia and the U.S. account for 18 percent of Danone’s revenue.

Yogurt Pricing

Danone introduced Greek yogurt under the Activia brand as well as Oikos dips in the U.S. in the second quarter. The company is expecting more promotions this year in the U.S.’s Greek-yogurt market following industrywide price cuts in the first half, Terisse said today.

Like-for-like revenue at Danone’s waters division jumped almost 11 percent in the quarter as growth in emerging markets offset falling European sales. Sales at the medical-nutrition unit rose 4.7 percent on the same basis, less than analysts estimated, because of pressure on health-care spending.

The first-half trading operating profit gained 2.3 percent to 1.48 billion euros, matching the median of 11 analyst estimates compiled by Bloomberg. Underlying net income fell 1.3 percent to 873 million euros, hurt by shifts in currencies such as the Brazilian real and the Argentinian peso.

Danone reiterated its forecast today for like-for-like sales growth of at least 5 percent this year and the trading operating margin narrowing by a range of 30 basis points to 50 basis points.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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

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