Irish boost as Danone taps China baby foods spurt

Danone’s yogurt business is finally showing signs of a turnaround, while its baby foods business is tapping huge growth in China.

The Paris-based company’s revenue climbed 5% on a like-for-like basis in the first three months, the fastest first-quarter growth in five years and above analyst expectations.

Danone makes baby food in Cork and Wexford. 

The industry supplying infant formula to China is hugely important for Irish dairy industry and between Danone and Nestle supports hundreds of jobs here — this country supplies 20% of the world’s infant formula and is the second-biggest exporter to China.

Based on 2016 figures, exports of Irish baby food amounted to at least €1.2bn.

The gains were bolstered by an improvement in Danone’s dairy arm, which has been a drag on growth, as infant-formula sales raced ahead. The shares were up 2.5%, valuing Danone at €45.9bn.

Analysts at Davy said the first-quarter update showed it had achieved progress. Led by sales in China, its baby foods division is expected to continue to grow strongly, Davy said, before growth slows in the second-half of the year. “In summary, the risk-reward profile is becoming more favourable at Danone,” but will likely leave its forecasts unchanged, the broker said.

The company’s essential dairy- and plant-based unit, outside North America, returned to growth as a revamp of its Activia line showed its first results.

In Europe, the business is still in decline, though it is getting better, according to chief financial officer, Cecile Cabanis.

“We’re seeing consistent sequential progress in Europe,” she told reporters. In China, infant-formula sales surged more than 50%. Demand has been ramping up amid higher birth rates and a growing middle class looking for foreign-made products.

Danone is still benefiting from the peak of births in 2016, though that will slow down throughout the year, as market demand normalises, especially in the second-half, Ms Cabanis said.

“The dairy- and plant-based business is gradually improving, just as baby-food growth is expected to slow,” said Alain Oberhuber, an analyst at MainFirst Bank. “If dairy continues to go well in Europe and North America, it could help offset that slowdown.”

In addition to the revenue growth, volume gained 1.1% in the quarter, beating estimates that called for a decline.

The performance gives Danone a boost, after the company was said to have been targeted last year by activist fund, Corvex Management.

Danone turned in “a very positive set of figures, driven by its peerless position in China infant nutrition,” said Jon Cox, an analyst at Kepler Cheuvreux.

The company acquired soy-milk maker, WhiteWave, for $10bn (€8bn) last year, after years of weakness in Danone’s largest business line, yogurt and fresh dairy.

Ms Cabanis said the company may look at strategic options for the struggling fresh-food business it acquired in the WhiteWave deal.

Danone sold about two-thirds of its stake in Japan’s Yakult for about $1.6bn last month, and will use the proceeds to reduce its debt ratio and invest to accelerate organic growth.

Bloomberg and Irish Examiner

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