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Profitability Forecasted to Improve by Danone
February 23, 2016

Danone, the world’s biggest yogurt maker, forecast profitability to improve in 2016 as its fresh-dairy business recovers, sending the shares higher.

Trading operating margin should show a “solid” improvement in 2016, the Paris-based company said in a statement Tuesday. That’s a change from last year’s forecast of “slight” growth. The margin widened to 12.9 percent in 2015 from 12.6 percent in 2014, the first annual increase in four years. The shares rose as much as 3.2 percent in early Paris trading.

The results were “slightly ahead of expectations, fairly straightforward, surprise-free and fully in-line with full-year guidance,” said Andrew Wood, an analyst at Sanford C. Bernstein. That “is always positive for a company like Danone trying to re-build its reporting reputation.”

Fresh-dairy sales rose 0.6 percent in 2015 and profitability of that unit widened to 10 percent from 9.3 percent. Danone gets more than half its sales from that business, which makes Activia yogurt and Actimel fermented drinks and has been weighed down by years of rising milk prices and a consumer slump in western Europe.

Sales across the company will rise 3 percent to 5 percent on a like-for-like basis this year after rising 4.4 percent in 2015, the slowest rate in six years, Danone said.

‘Slight Disappointment’

“The 2016 top line guidance is a slight disappointment,” Bryan Garnier & Co. analyst Virginie Roumage said in a note. “However, this should not mask other positive news,” such as the profitability forecast and the improvements in yogurt.

The French company joins its bigger rivals with a muted outlook for this year as the outlook for global economic growth worsens. Nestle SA last week indicated that 2016 sales growth will be below the Nespresso maker’s long-term target for a fourth year as it becomes harder to raise prices. Unilever, the maker of Ben & Jerry’s ice cream, said on Jan. 19 that it’s preparing for tougher market conditions and high volatility this year.

“We can find little cause for complaint,” wrote Jeff Stent, an analyst at Exane BNP Paribas, adding that Danone usually errs “on the side of optimism” with annual forecasts. “The only surprise here to our mind is that Danone has been sensible enough to embrace this range.”

“Economic conditions will remain volatile and uncertain overall, with fragile or even deflationary consumer trends in Europe, emerging markets undermined by volatile currencies, and difficulties specific to a few major markets,” including Russia, China and Brazil, Danone said.

Adjusted operating profit rose 8.6 percent to 2.89 billion euros ($3.2 billion). Analysts expected 2.88 billion euros, according to the average estimate. Fourth-quarter sales rose 3.6 percent, beating the consensus of 3.2 percent.

Chairman Franck Riboud will give up an expanded strategic role during 2017, becoming a traditional non-executive chairman, Danone also said. He had been given extra duties for an transition period after the company gave his chief executive officer role to Emmanuel Faber in 2014.

By Bloomberg News
Source: AgWeb.com


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