Danone raises profit outlook

French multinational food and nutrition group Danone has forecast profitability will improve this year as it contains costs to adjust for difficult markets such as China and Russia.

Danone raises profit outlook

The trading operating margin should widen by 50 to 60 basis points in 2016 on a like-for-like basis, the French yogurt maker said in an unscheduled statement yesterday.

The company previously targeted “solid improvement”.

Danone reiterated its forecast for comparable sales growth of 3% to 5% this year. The group’s first-half results are due to be published at the end of next month.

“This is positive news as investors were concerned about Danone’s ability to improve margins and maintain its organic revenue growth rate,” said Alain Oberhuber, an analyst at MainFirst in Zurich. He said he was expecting improvement of about 30 basis points.

Danone has faced difficulties in Russia, once its largest market, over the last two years. The company has been adding higher-margin products such as yogurt with locally grown berries in that market, and it’s adjusting to new regulations in China over the sale of infant formula.

The sales forecast implies that revenue gains may slow with decelerating economies. Sales rose 4.4% in 2015, the weakest rate in six years.

“All the initiatives we’ve set and all the discipline on cost control we put in place are starting to pay off,” said chief financial officer Cecile Cabanis. She said the announcement follows a quarterly management meeting Danone had evaluating its investments, cash, and cost savings.

Foreign infant-formula makers may face a tougher environment in China as the government tightens a tax loophole that allowed lower prices on goods sold through websites operating outside of China.

Products sold on websites and shipped overseas to Chinese consumers had a tax increase of 11.9% starting in April as China cracks down on the grey market.

Danone said in February the sale of its Dumex Chinese unit would boost the margin by about 20 basis points on top of the like-for-like improvement.

Danone has already identified Africa as its likely main growth area going forward; group chief executive Emmanuel Faber telling Bloomberg recently that the continent represents the “future frontier” for the group.

This year alone, Danone sees its sales in Ghana growing by 3% on a like-for-like basis.

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