French dairy giant Danone warned today (27 July) it sees little sign of improvement in growth in southern Europe, with Spain in particular “under pressure”.
The firm this morning booked a 10.1% increase in net income from continuing operations for the first half of 2010.
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And while sales in Danone’s European division increased 1.7%, the area’s operating margin dropped 44 basis points on a like-for-like basis.
Compared to the first half of 2009, total margins decreased by 74 basis points on a like-for-like basis, which Danone put down to the effect of rising raw material prices and a difficult comparable basis.
Speaking on the firm’s earnings conference call, CFO Pierre-Andre Terisse said southern Europe remains a “difficult” market.
“In southern Europe I don’t think we can talk of any form of improvement, it basically remains difficult…Spain also remain a difficulty, and frankly, given the economic context, I would not expect it to improve in the short term at least,” Terisse said.
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By GlobalDataDanone highlighed Spain as being affected by a particularly challenging environment in both its fresh dairy and waters divisions.
Terisse added: “Spain is under pressure, it has been the case for the past one or two years, and it is slightly more the case in the past few months. As the economic situation deteriorates the consumption trends do too, so we are talking about an evolution of sales in Spain, which is clearly negative.”
Despite this, Terisse said France had posted “good results” and that the UK, Germany and Poland were also “doing well”.
With regard to the firm’s brands, Terisse said that while its Activia brand is performing “extremely well” in Europe, Actimel remained “a bit weak” and that the company is currently in the process of testing new versions of the product in selected markets.
“It is clearly too soon to have a result on that but there is a clear need for innovation, as I have been mentioning for several quarters now. That is clearly the approach now, keep accelerating innovation in order to progressively go back to positive territories,” Terisse said.
For the full-year, Danone has targeted sales growth of “at least” 6%, up from its previous guidance of more than 5%.
Terisse told analysts that confidence in Danone’s businesses prompted the increase.
“You will see in all the division, businesses and geographies that there are areas where consumption trends remain difficult,” Terisse said. “But at the same time there are areas where we have investment in place, that we keep putting investment in place and where we have accelerated our growth.
“Given our medium term guidance of at least 5%, we have decided to increase our guidance for the full-year to least 6%, which I believe is a sign of confidence in what we see from our business,” he added.
