Danone Third-Quarter Revenue Rises at Weakest Pace in Decade

  • Baby food sales slowed down on new Chinese regulations
  • Full-year growth probably will be at bottom of range: analyst

Danone, the world’s biggest yogurt maker, reported the slowest third-quarter sales growth in more than a decade amid a slowdown in baby food, traditionally one of the company’s fastest-growing businesses.

Revenue increased 2.1 percent on a like-for-like basis, Danone said in a statement on Tuesday, missing analysts’ estimates for a 2.4 percent increase. The stock reversed early declines after Chief Financial Officer Cecile Cabanis said full-year profitability will be at the high end of its target range, helped by price increases, efficiency measures and cost cuts.

Danone’s baby food production in Europe, which had benefited from demand in China for foreign infant formula, is now slowing as China tightens the rules to help local producers. Food companies are caught in a bind in other emerging markets, where currency devaluations are making raw materials more expensive and consumers are paring spending on concern about economic growth. Danone said its shipments in Brazil and the former Soviet countries are dropping after recent price increases and a shift to higher-margin products.

“We will deliver in a consistent manner despite the persistent volatile environment,” Cabanis said on a call with analysts.

Total sales fell to 5.54 billion euros ($6.1 billion) as volume dropped for the first time in six quarters. Nine-month like-for-like growth was 3.2 percent, and the company previously forecast a full-year increase of 3 percent to 5 percent.

Danone rose 0.3 percent to 64.02 euros as of 11:27 a.m. in Paris, after dropping as much as 2.3 percent in early trading.

Sales at Danone’s infant formula unit rose 1.7 percent, stalling after 6 percent growth in the first half. China has raised taxes on foreign infant formula market sold online after concern over product safety created a boom in such purchases. The new regulations also include a stricter registration process.

“The big question mark is on China and baby food: is it something more structural, or is it a transition caused by regulatory changes?,” said Jon Cox, an analyst at Kepler Cheuvreux. “I believe it is the latter, but there is a lot of uncertainty around that.”

Chief Executive Officer Emmanuel Faber said China’s transition will continue weighing on baby food sales in coming quarters.

Water Rebound

Bottled water sales growth will rebound in the fourth quarter after fizzling out in the most recent period, CFO Cabanis also said.

The maker of Evian water in July agreed to buy WhiteWave Foods Co. for $10 billion, a move that would double the size of the company’s U.S. business and make it the global leader in organic food and drinks. Danone said it aims to conclude the transaction this year, though it may face regulatory delays after the U.S. Department of Justice requested more information.

“Overall, I believe the WhiteWave acquisition is not factored into the consensus and while this year’s estimates may be shaved, there is still a lot on the table for next year,” Kepler Cheuvreux’s Cox said.

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