What the analysts say: Danone H1 results
Danone reported its half-year results today (27 July), just six weeks after it issued a profit warning for 2012. What did leading industry analysts make of the French food giant's results?
Sanford Bernstein senior research analyst, European Food and HPC Andrew Wood
"We expected a very uninspiring reporting and that is what we got…very much in-line with deflated expectations. It is perhaps noteworthy that this is now the second consecutive quarter that Danone has grown slower than Unilever in both sales and volume terms, which perhaps says something about both companies. Of particular note was the weak growth in fresh dairy (+2.1%) which came in below our (+3.2%) and consensus (+2.9%) expectations and was the worst quarterly performance in 3 years since the nadir of the 2009 reset.
"We believe it is going to take time for Danone to recover its fresh dairy growth back to reasonable levels (and it is somewhat strange to consider that +5% might now be reasonable in this business) and probably even longer for management to regain the credibility it has lost over recent quarters/years."
Jon Cox, Kepler Capital Markets
"Better than expected Q2 organic driven by baby nutrition (+13.6% organic, market +9%) as it won share in China and built inventories ahead of a Dumex renovation scheduled for July. Asia organic growth of +17.2% (Kepler +12%). Fresh dairy continued to disappoint with organic sales +2.1% (consensus 2.9%) amid 0.3% volume decline with sales in Europe down 1%. However, both Russia and US sales continued to improve. In terms of H1 margins, medical nutrition suffered 252 basis points decline amid higher raw materials prices (milk protein) with baby nutrition margins holding. Free cash flow flat at EUR890m.
"Better than expected amid whisper of another profit warning (particularly post Mead Johnson warning Thursday) and we like move on Spanish minorities. It starts to road to rebuilding investor confidence."
Alain Oberhuber, consumer goods research analyst, MainFirst Schweiz
"Danone reported in-line H1 numbers and gave a confident outlook to achieve the revised numbers from last May at its profit warning. Organic growth rate after six months was +5.9% and EBIT-margin was 13.9% were both exactly in-line with our expectations around +1% above consensus. Disappointing was the operating free cash flow, which was around 9% below consensus. It is becoming increasingly challenging for Danone to achieve its free cash flow target of EUR2bn for FY 2012 without cutting further into capex.
"As we have stated in our big report of last October, we expect an alignment of organic growth rates of the big three European consumer goods companies to around +6% in FY 2012. Danone is currently the only company which will have lower operating margins in the current year, whereas Nestlé and Unilever should see a slight margin improvement. Danone, with an EV/EBITDA 2013E of 9.7x, should not be trading at a premium to Unilever with an EV/EBITDA 2013E of 10x. Nestlé trades at a multiple of 11.8x or at 10.8x excl. L’Oréal. We prefer Unilever and Nestlé to Danone."
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