Danone remains cautious despite strong sales growth
In a statement, the company said: “Danone assumes that the financial, economic and social crises will continue to weigh on consumption trends in Europe.”
The French company has therefore decided to stick to its existing outlook for a stable operating (EBIT) margin compared to 2009. But with emerging markets expected to keep developing well, it has upped its like-for-like sales growth forecast for the full year from 5 per cent to 6 per cent.
Growth rates
For Q2 2010, Danone reported a 14 per cent increase in reported sales to €4,386m but removing the effect of exchange rates, organic sales were up 7 per cent.
Bernstein Research analyst Andrew Wood said this figure was above its estimates, which were already ahead of market consensus.
However, in the Fresh Dairy division, which accounts for well over half of turnover, Wood said sales growth of 6.6 per cent was strong but mildly below its expectations.
On the plus side, he said: “Management noted particular strength in the US, which somewhat contradicts recent Nielsen data…but would be a good sign for the business if momentum can be maintained.”
Margin weakness
Below the top line, Danone suffered from weak operating margins as commodity costs rose and the Reset restructuring programme continued to affect profitability. Trading operating margin fell from 16.03 per cent in H1 2009 to 15.30 per cent in H1
Wood commented: “Danone’s operating margin growth was weak in H1…below both consensus and our expectations.
“Higher commodity costs were a major driver, as was the continued negative impact from the Reset programme…but we also note with caution that Danone cut A&P significantly in H1 (-60bps on a like-for-like basis), which fuels some concern on H2 top-line growth.”
Giving the Danone perspective on the results, chairman and CEO Franck Riboud said they confirm a strong start to 2010. In his comments, the chairman flagged up the investment projects underway at Danone.
“We continue to invest in countries, products and brands with a strong potential: baby nutrition in Asia, dairy products in the US, in Brazil as well as in Russia where the Danone-Unimilk alliance provides us with significant long term growth opportunities.”
