Danone Forecasts Higher Profitability on Cost Control

  • Trading operating margin should widen by as much as 0.6 ppts
  • French yogurt maker reiterates sales growth target for 2016

Danone forecast profitability will improve this year as it contains costs to adjust for difficult markets such as China and Russia.

The trading operating margin should widen by 50 to 60 basis points in 2016 on a like-for-like basis, the French yogurt maker said in an unscheduled statement Tuesday. The company previously targeted “solid improvement.” Danone reiterated its forecast for comparable sales growth of 3 percent to 5 percent this year. First-half results are due July 28.

“This is positive news as investors were concerned about Danone’s ability to improve margins and maintain its organic revenue growth rate,” wrote Alain Oberhuber, an analyst at MainFirst in Zurich. He said he was expecting improvement of about 30 basis points.

Danone has faced difficulties in Russia, once its largest market, over the last two years. The company has been adding higher-margin products such as yogurt with locally grown berries in that market, and it’s adjusting to new regulations in China over the sale of infant formula. The sales forecast implies that revenue gains may slow with decelerating economies. Sales rose 4.4 percent in 2015, the weakest rate in six years.

The stock rose 0.4 percent to 60.69 euros as of 9:21 a.m. in Paris.

Payoff Time

“All the initiatives we’ve set and all the discipline on cost control we put in place are starting to pay off,” Chief Financial Officer Cecile Cabanis said on a call with analysts. She said the announcement follows a quarterly management meeting Danone had evaluating its investments, cash and cost savings.

Foreign infant-formula makers may face a tougher environment in China as the government tightens a tax loophole that allowed lower prices on goods sold through websites operating outside of China. Products sold on websites and shipped overseas to Chinese consumers had a tax increase of 11.9 percent starting in April as China cracks down on the gray market.

Danone said in February the sale of its Dumex Chinese unit would boost the margin by about 20 basis points on top of the like-for-like improvement.

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