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Danone reconfirms targets after ‘solid’ baby nutrition and water sales

By Mark Astley , 17-Oct-2012

Danone has reconfirmed its full year targets after recording “solid growth” in its Baby Nutrition and Waters business segments in the third quarter of 2012.

The French dairy giant reported consolidated sales €5.257bn for the third quarter of 2012 – a 9.4% increase on Q3 2011. The firm’s Baby Nutrition and Waters divisions drove the increase in the three month period with sales growth of 11.5% and 12.3% respectively.

Sales grew by 10% in emerging markets and North America combined, while sales in Europe continued to decline as Southern European demand for dairy products deteriorated further.

Despite Danone’s optimistic outlook, Sanford C. Bernstein believes Danone is more likely to “limp over the finishing line.”

Solid sales growth

“Danone reported solid growth in sales for the first nine months of 2012, in line with full-year targets, thanks to very strong momentum continuing worldwide except in Europe,” said Danone chairman and CEO Franck Riboud.

“Emerging markets and North America posted further strong growth in the third quarter. Oikos scored additional gains in the United States, while in Russia Danone-Unimilk continued to build its product portfolio. In Asia, Africa-Middle East and Latin America, operations expanded very rapidly in all product categories.”

“Yet pressure on consumer spending in Europe continued, and the situation deteriorated further in Southern Europe, affecting sales for the business lines most exposed to this region,” said Riboud.

In June 2012, Danone was forced issued a profits warning for 2012 – reducing its operating margin target to account for the collapse of dairy product consumption in Spain and other Southern European markets.

The France-based dairy giant attributed the reduced levels of consumption to the growing rate of unemployment in the region. Unemployment currently stands at more than 25% in Spain and around 10% in Italy.

“Against this backdrop, our priorities are clear: we will continue to deploy our model in growth regions by investing in our product categories, our brands and our people. In Europe, we need to adapt our model to the slump in consumption and to the needs of our consumers, while building new sources of growth,” Riboud added.

Limp over the finishing line

Elsewhere, Danone’s Medical Nutrition business reported a sales increase of 4.9% for the third quarter of the year, while its Fresh Dairy Product division continues to suffer from deteriorating dairy product consumption in Southern Europe, reporting an overall sales increase of 0.7% for the period.

The segment reported a sharp sales decline of more than 10% in the Southern Europe for the period.

According to Sanford C. Bernstein senior research analyst, Andrew Wood, even improvements in Russian and US sales are not enough to offset the European demand slump.

The improvement in Russia and the US were more than offset by further deterioration in Europe, including an astonishing -10% growth in Spain/Italy. Medical Nutrition also grew at its lowest level since the acquisition of Numico in 2007,” said Wood.

“Indeed, with just 5.6% growth YTD, Danone might just limp over the finished line in terms of its FY organic growth target of 5-7% (which was reiterated, as were the margin and cash flow targets),” he added.

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