Cape Times

Danone’s gains bolstered by taste for yoghurt

- Corinne Gretler

DANONE’S long-suffering yoghurt business is finally showing signs of a turnaround.

The company’s revenue climbed 4.9 percent on a likefor-like basis in the first three months, the fastest first-quarter growth in five years and above analyst expectatio­ns.

The gains were bolstered by an improvemen­t in Danone’s dairy arm, which has been a drag on growth as infant-formula sales raced ahead. The shares rose as much as 3.8 percent.

The company’s essential dairy and plant-based unit outside North America returned to growth as a revamp of its Activia line showed its first results. In Europe, the business is still in decline, though it’s getting better, chief financial officer Cecile Cabanis said.

“We’re seeing consistent sequential progress in Europe,” she told reporters on a call. “This year we confirm the stabilisat­ion of this part of the business and region.”

In China, infant-formula sales surged more than 50 percent. Demand has been ramping up amid higher birth rates and a growing middle class looking for foreign-made products.

Danone is still benefiting from the peak of births in 2016, though that will slow down throughout the year as market demand normalises, especially in the second half, Cabanis said.

“The dairy and plant-based business is gradually improving just as baby-food growth is expected to slow,” said Alain Oberhuber, an analyst at MainFirst Bank. “If dairy continues to go well in Europe and North America, it could help offset that slowdown.”

In addition to the revenue growth, volume gained 1.1 percent in the quarter, beating estimates that called for a decline. The performanc­e gives Danone a boost after the company was said to have been targeted last year by activist fund Corvex Management.

Danone turned in “a very positive set of figures driven by its peerless position in China infant nutrition,” said Jon Cox, an analyst at Kepler Cheuvreux.

The company acquired soymilk maker WhiteWave for $10 billion (R119.5bn) last year in an effort to branch out into faster-growing organic food and drinks after years of weakness in Danone’s largest business line, yoghurt and fresh dairy.

Cabanis said the company may look at strategic options for the struggling fresh-food business it acquired in the WhiteWave deal, adding that its priority is a revamp of the unit.

While fresh food has strategic value, the company would have to consider whether it’s the best operator of the unit, she said.

Danone sold about twothirds of its stake in Japan’s Yakult for about $1.6bn last month and will use the proceeds to reduce its debt ratio and invest to accelerate organic growth.

The company reiterated its forecast for earnings per share to rise at a double-digit pace at constant currencies this year. – Bloomberg

 ?? PHOTO: BLOOMBERG ?? Danone’s dairy arm, which has been a drag on growth as infant-formula sales raced ahead, has now improved.
PHOTO: BLOOMBERG Danone’s dairy arm, which has been a drag on growth as infant-formula sales raced ahead, has now improved.

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