Danone forecast a resumption of growth in the second half of 2014 as the world’s biggest yogurt maker rebuilds its infant nutrition brands in China following the first annual earnings decline in more than a decade.
The latter part of the year will be stronger than the first as the maker of Evian bottled water also seeks to stabilize its business in Europe amid “sluggish” consumer demand in the region, Paris-based Danone said today in a statement.
The year will be marked by persistent milk price inflation and exchange-rate volatility in emerging markets, Danone said. The company’s baby-food business suffered from a recall last year after a botulism scare in Asia, which turned out to be a false alarm. The maker of Activia yogurt has also been weighed down by bribery claims at its Dumex baby-milk business in China.
“They’re clearly giving themselves room for maneuver depending on how things work out in the first half of the year in baby food in China,” said James Targett, an analyst at Berenberg Bank in London.
Danone rose as much as 2.9 percent in Paris trading and was up 1.9 percent at 51.95 euros at 10:38 a.m. as the Stoxx Europe 50 Index fell 0.9 percent.
“Organic growth in sales and operating margin will vary widely from one half to the next in 2014,” Danone said in the statement. “The group thus anticipates a return to strong, sustainable, profitable growth beginning in the second half.”
Danone expects second-half sales growth may be as much as 6 percentage points higher than in the first half and that margins may be 3 to 4 percentage points higher, according to company spokeswoman Charlotte Pasternak.
Last week, Nestle SA Chief Executive Officer Paul Bulcke also forecast a stronger second half after a period of “very soft” pricing power. Unilever, the maker of Magnum ice cream, said in January that decelerating growth in emerging markets and stagnant demand in developed countries will continue.
Danone plans to return to sales growth in European dairy by the end of the year as it introduces American-style Greek yogurt to the region, CEO Franck Riboud said on a conference call. The product is high in protein rather than high in fat like traditional Greek yogurt. The company also got Food and Drug Administration approval to advertise Activia yogurt in the U.S. with three health claims regarding digestion, Riboud said.
Danone’s adjusted earnings per share fell 7.6 percent to 2.78 euros ($3.82) in 2013, missing the 2.84-euro average of 29 analyst estimates. Trading operating profit fell 5 percent to 2.81 billion euros. The company cut its 2013 forecasts in October and said the food scare set it back by six months.
Like-for-like sales increased 2.9 percent in the fourth quarter, beating the median estimate of a 2.7 percent gain. The measure excludes items such as divestments and currency shifts. For the year, revenue on that basis gained 4.8 percent.
Danone expects 2014 revenue to rise 4.5 percent to 5.5 percent, while the operating margin may widen or narrow as much as 0.2 percentage point on a like-for-like basis.
The forecasts are a bit “insipid,” Jon Cox, an analyst at Kepler Cheuvreux, said by e-mail. Still, “the worst may be over for a company which has been hurt over the last 24 months.”
Danone is weighing the sale of its medical-nutrition unit in a deal that may fetch more than 3 billion euros, a person familiar with the matter told Bloomberg News this month. Fresenius SE, a German health-care company, is considering bidding as much as 4 billion euros for the division, Reuters said, citing two people close to the situation it didn’t name.
Chief Financial Officer Pierre-Andre Terisse today declined to comment on whether Danone will sell the unit. The French company acquired the business in 2007 with its 12.3 billion-euro purchase of Royal Numico NV. The unit makes products from Nutrison, its tube feeding range, to Souvenaid, which accompanies treatment at an early stage of Alzheimer’s, and accounts for about 6 percent of total revenue.