Analysts were for the most part positive about Danone’s third-quarter results but warned the French food company still has work to do in its dairy operations, particularly in Russia and the US.

Rising dairy, baby food and medical nutrition sales, as well as rapid growth in developing markets, led to a 5.9% increase in revenues in the third quarter. However, analysts were concerned Danone’s fresh dairy businesses, its poor performance in Russia and its late entry into the US Greek yoghurt market.

Sanford Bernstein analyst Andrew Wood said Danone’s 1.5% increase in volumes in the quarter were slightly ahead of expectations but added the results also showed the “worst fresh dairy volume performance since Q2 2008”.

Danone’s dairy sales increased 3.5% to EUR2.4bn (US$3.8bn) in the third quarter although volumes fell 1.5%.

Jon Cox, head of European beverage and food research at Kepler Capital Markets, said Danone needs to focus more on chilled dairy. “Danone has to get chilled dairy right because it’s half of their sales”, he said.

However, Cox said he was “reassured” by the results, especially, he said, as the company appears to be honest about the problems in Russia and what needs to be done to address them.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

He said Danone’s Russian operations are “set for growth” if it sifts out its lower-end commodotised milk products.

Wood is less confident about Danone’s prospects in Russia. He described its business there as “one disaster after another” thanks to low margins, low growth and a change in management and feels there is more bad news to come. “We would not bet against other issues coming out of the woodwork”.

Nevertheless, Danone chairman and CEO Franck Riboud remains optimistic about the company’s prospects in Russia. Speaking to analysts yesterday (18 October), he insisted its negative volumes and flat sales in Russia are a consequence of price increases brought about by strong inflation in 2011.

He said: “The market tends to stabilise a bit before it grows again. I see no reason why we should not be gradually coming back to 10-15% growth of our portfolio in this region. It will take a few months and quarters before we go back to that.”

Meanwhile, there was some concern about Danone’s late entry into the Greek yoghurt sector in the US.

Wood and Cox believe Danone is likely to gain ground in the category but Cox said Danone was caught “flat-footed” by the growth in Greek yoghurt in the US.

Riboud, who has described the US as an “emerging market” for yoghurt, acknowledged that Greek yoghurt was an important category in the US and will continue to grow. However, he insisted that the category was not the “end game” for the market.

“We don’t believe Greek is going to eat all of the category,” he said. “When you look at what Greek is addressing, it is the needs of the consumer, which remains addressed by Activia.”