French dairy giant Danone (BN) has upgraded its 2017 earnings guidance despite reporting “slow sales” in the first quarter
Danone upgraded its forecast to double-digit recurring earnings per share growth at constant exchange rates, driven by expected benefits from its deal to buy WhiteWave in the US.
The earnings upgrade came despite a quiet start to the year, with like-for-like sales rising 0.7% and by 3% on a reported basis in line with expectations.
Overall first quarter sales stood at €5.46bn, reflecting a -2.6% decline in volume and a 3.3% rise in price. Reported sales were boosted by a 2.8% exchange rate benefit, reflecting the positive impact of changes in the Russian ruble, Brazilian real and the US dollar.
The fresh dairy products division reported sales down 2.3% like-for-like, including a 5.3% decline in volume and a 3% rise in value.
Waters was up 1.7% like-for-like, consisting of a 1.3% decrease in volume and a 3% price rise. Early life nutrition was up 4.1%, driving by a 4% rise in prices.
Danone said in the year to come economic conditions will remain particularly volatile and uncertain overall, with persistently fragile or even deflationary consumer trends in Europe, and specific contextual difficulties in a few major markets, including the CIS, China and Brazil.
It pledged to give priority this year to improving margins and strengthen its growth model via disciplined resource allocations that promote strategic growth opportunities over short-term tactical allocations.
CEO Emmanuel Faber commented: “Q1 has been an important time for all teams at Danone. As anticipated, sales are showing a slow start to the year.
“In a continued volatile environment, we have made progress on our key priorities across our categories. In particular, to address headwinds and sub-optimal execution in the Fresh Dairy category in Europe, which sequentially impacted our performance, we continue to adapt our plans. In addition, in a matter of only a few weeks, we simplified our global organization, and localized further our decision-making.”
“At the same time we are entering into a new chapter with the acquisition of WhiteWave. With leading positions in some of the fastest-growing, health-focused global categories, this combination will drive our Alimentation Revolution, our business performance, and will accelerate our 2020 profitable growth journey.
“I am therefore fully confident that we will drive strong value creation from the WhiteWave acquisition, and deliver the attractive financial benefits we outlined last July. Reflecting this in the short term, we are now upgrading our Danone FY 2017 guidance to double-digit recurring EPS growth at constant exchange rate.”
“2017 is a year of construction that will strengthen Danone as an even more resilient company, best prepared to seize tomorrow’s opportunities, with the right portfolio of products and brands to serve our consumers meaningfully in a balanced array of geographies. And with fully committed teams”.
However, broker Jefferies warned that the decision to include WhiteWave in its the full-year like-for-like forecast was “a signal of a lack of confidence in the core top line”.
Jefferies added: ”Danone have declined to disclose Q1 trading at WhiteWave but commentary here feels downbeat to us, with Danone saying that Q4 executional challenges in plant-based and Earthbound ‘not yet resolved’ and the long completion window leading to ‘some disruption.’”
Danone share are currently down 2.2% to €62.29 in Paris.
We view the decision to include WWAV in the FY17 LFL as a signal of a lack of confidence in the core top line.