The results, however, were in line with Danone’s expectations, and analysts’ predictions.
CEO Emmanuel Faber said that with 3.5% organic growth, Danone delivered a performance fully in line with the 2016 agenda and priorities.
“This growth reflects stable or improving underlying trends across all our businesses, and positive results on key priorities. It includes progress on our Dairy agenda, with a confirmed re-acceleration in the US, and sequential improvement in Europe,” Faber said.
Fresh dairy products sales dropped from €2.81bn ($3.19bn) in Q1 2015 to €2.68bn ($3.04bn) in Q1 2016. However, early life nutrition and medical nutrition sales both grew, at 0.5% and 1.2% respectively.
Soft start to 2016
Andrew Wood, senior research analyst, European food & HPC, at Wall Street research company Sanford C. Bernstein, said that the company delivered what was expected.
“Overall, we expected a fairly soft start to 2016 for Danone, and that was what it delivered, even if it beat expectations on some measures. Specifically, like-for-like growth Q1 (+3.5%) was slightly ahead of consensus (+3.2%) and our expectations (+3.2%)… but it was still the lowest Q1 growth delivered by any of our Food & HPC companies who have reported so far, and it was Danone’s lowest growth since Q2 2014,” Wood said.
He added that at a business line level, fresh dairy beat expectations (although fresh dairy volumes decelerated and stayed negative), while early life nutrition (+4.8%) continued to slow to its lowest growth since the impact of the China recall in Q2 2014 (the company was forced to recall its milk formula from China due to potential contamination issues), possibly due to weak sales in Europe as exports to China have slowed.
Fresh dairy products
In like-for-like terms, the fresh dairy products division reported sales up +2.3%, which the company said was supported by anticipated strong growth in North America.
The company said that it is pursuing a major renovation of its brand portfolio, and is planning relaunches throughout the year for Danonino, Actimel and Activia, with a view to stabilizing sales in Europe by the end of 2016.
Danone said that its ALMA region (Asia-Pacific /Latin America/Middle East/Africa) reported strong growth despite contrasting performances in Latin America.
It noted that a slowdown in Brazil linked to difficult economic conditions was offset by solid results in Mexico and Argentina.
Wood said that while Danone delivered a third consecutive quarter of positive growth in Fresh Dairy in Q1, there was a deterioration in the price/volume dynamics, with a slowdown in volume growth (-2.1%) while pricing (+4.4%) was the highest since Q1 2015.
He added, “In Europe, Danone confirmed that it is making good progress with its transformation program and reiterated that it intends to stabilize sales by the end of 2016.”
Early life nutrition
The early life nutrition division saw sales rise +4.8% like-for-like, reflecting a +1.3% volume rise and a +3.5% increase in value.
In China, Danone said that it continued to build a sustainable growth model by reinforcing its international brands (Aptamil and Nutrilon), managing the conversion of indirect online sales into direct sales, and developing its presence in specialized stores.
The company said that sales in the rest of the world show good momentum, while some countries (Brazil and New Zealand) are significant growth drivers.
The medical nutrition division generated sales growth of +6.6% like-for-like.
Wood said that while this was another “robust quarter of growth,” this was the lowest quarter of growth since Q1 2014.
In Europe and in the CIS and North America area, Danone reported growth of over +5%, driven by solid gains in mature European economies including the United Kingdom and Germany.
The ALMA area, which reported double-digit growth, benefited from further expansion in Brazil and Argentina, despite economic difficulties in both countries, while China once again turned in very positive results, driven by Neocate's very strong performance, Danone’s report said.
“After solid 2015 results, Q1 2016 results confirm my confidence that Danone, with our Executive Committee and all our teams, is fully engaged in the right direction to keep adapting our growth model to ensure strong, profitable and sustainable growth as we move towards 2020, and to deliver another year of success in 2016,” Faber concluded.