Danone lifts sales goal for first time in four years and pledges to boost fresh-dairy profitability

Danone, the world’s biggest yoghurt maker, gave a higher sales goal for the first time in four years yesterday as it pledged to boost profitability at its fresh-dairy business, which represents more than half of the French company’s revenue.

Danone lifts sales goal for first time in four years and pledges to boost fresh-dairy profitability

The company said sales growth should exceed 5% by 2020 on a like-for-like basis, according to notes from analysts at Kepler Cheuvreux and Exane BNP Paribas.

Emmanuel Faber, who became chief executive a year ago, was presenting his strategy in a three-day seminar that ended yesterday in Evian in France.

The fresh-dairy unit, which makes Activia yoghurt and Actimel fermented drinks, has been weighed down by years of rising milk prices and a consumer slump in western Europe as buyers opted for cheaper private labels.

The world’s biggest yoghurt maker also has struggled to turn around its baby-food business in China and this year agreed to sell its Dumex brand in that market to a partner.

“There may be earnings surprises by the end of 2016 as several European markets are starting to improve fresh-dairy profitability and the organic growth rate by full-year 2016,” Alain Oberhuber, an analyst at MainFirst Bank, wrote in a note to investors.

“We like the increased visibility,” he said.

Danone shares were trading in Paris yesterday at €63.97, down around 1% from the previous day’s close.

The dairy products giant has a market value of €41.8 billion. The shares have risen by almost 17.5% since the start of the year.

Nestle’s shares have meanwhile risen by around 3% this year. It has a market value of 242.4 billion Swiss francs (€224.5bn).

Danone’s fresh-dairy unit aims to increase its profit margin more than 2 percentage points on a currency-neutral basis by 2020 as its sales will “typically” rise 3% to 5% on a like-for-like basis, according to Exane.

The company expects its water and infant-formula units to post like-for-like sales growth of 7% to 10%, while the medical-nutrition business will increase by 6% to 8%.

Danone published slides on its website late Tuesday with such numbers for those units, though it doesn’t specify what the figures refer to.

A spokeswoman said the slides refer to Danone’s “ambition” for 2020, without elaborating. The yoghurt maker’s 2015 forecast is for 4% to 5% growth.

The outlook has come down each year since 2011, when Danone was forecasting growth rates of 6% to 8%, faster than Nestle’s target for average long-term sales growth.

The company posted its first annual profit decline in more than a decade in 2013, when the maker of Dumex fought off bribery claims in China and a false alarm over baby-food safety.

While Danone’s local brands are still struggling, the company is betting on e-commerce as Chinese consumers buy more foreign-made infant formula online.

Analysts expect a rebound in second-half earnings to result in underlying net income growth of 11% in the full year.

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