Setback in Danone’s sales growth following Asia infant formula recall
The world’s largest yoghurt maker said it was cutting its sales, profitability, and free cash-flow goals for 2013. “Our priority is to get back on track for strong and sustainable growth in this region [Asia] as early as possible in 2014,” said chief financial officer Pierre-Andre Terisse.
Danone shares were down around 5% in early trading yesterday, the second- biggest losers in the French blue-chip CAC 40 index. The stock fell as low as €50.30, its lowest in nearly eight months.
To counter weakness in Europe, the maker of Bledina baby food and Volvic water has been expanding in fast-growing markets in Asia, notably China, where previous food- safety scares have boosted demand for foreign baby milk formula. China is an important market for Danone’s baby food division, which accounts for 20% of group sales, making it the No 2 contributor after dairy. But Danone has faced a variety of problems in China this year.
In July, it was hit by a fine and had to cut prices in China after a milk-powder price-fixing probe. Then in August it had to recall infant formula products in Asia due to an unfounded health scare stemming from New Zealand-based supplier Fonterra .
Most recently, two of its units — Dumex in baby food and Nutricia in medical nutrition — faced bribery allegations in China, which the units are investigating.
Danone said that as a result of the Fonterra recall its baby food sales fell 8.6% in the third quarter, reversing a 15.2% rise in the first half. This compares with an average market expectation for a 3% decline.
It said the Fonterra recall would cost it €350m in lost 2013 sales, €280m in lost margin, and €300m in lost cash. Sales to consumers in these markets last month represented only 40% of their pre-crisis level in July.
