First turnover drop in 10 years for Danone

First turnover drop in 10 years for Danone

French yoghurt producer Danone has had a weak 2013 as turnover dropped for the first time in more than 10 years, which prompted the company to predict a rather moderate 2014: it expects the upcoming (first half of the) year to be relatively ‘sluggish’.

Bribery claims and botulism fears

For the past 10 years, Danone has had turnover increases, but that came to an abrupt halt in 2013 because of a botulism report in Asia, which impacted sales tremendously. In the end, the report turned out to be a false alarm, but the damage had already been done. Bribery claims in China also did not help to improve its reputation in this market.

 

In the end, operating profit fell 5 % to 2.81 billion euro, something the company had already anticipated somewhat in October 2013 when it slashed forecasts and feared a six-month setback because of the botulism issue.

 

Careful about 2014

Like-for-like sales did grow 2.9 % in the fourth quarter, which narrowly beat analysts’ expectations (at 2.7 %), while the full-year like-for-like revenue even rose 4.8 %. Danone expects 2014 to generate a 4.5 to 5.5 % like-for-like turnover increase, but remains vigilant and watchful about the first half of 2014.

 

“Organic growth in sales and operating margin will vary widely from one half to the next in 2014,” Danone said. “The group thus anticipates a return to strong, sustainable, profitable growth beginning in the second half.” The first half of 2014 will have “sluggish” European sales, while emerging markets will experience milk price inflation and exchange rate fluctuations, according to Danone.

 

Analyst expectations

The provided outlook for 2014 seems a bit “insipid” according to Jon Cox, analyst for Kepler Cheuvreux, but he believes it is a logical move considering the evolution in infant nutrition. He does however feel that the "problems may be over for a company which has been hurt over the last 24 months."

 

James Targett, analyst for Berenberg Bank, believes Danone is “giving themselves room for maneuver depending on how things work out in the first half of the year in baby-food in China”. In any case, Danone is seeking compensation for the botulism situation of last year, as New Zealand-based Fonterra provided the milk powder at the centre of the problem, which forced Danone to recall everything.

Tags: