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October 18, 2019

Danone denies over-optimistic forecasting charge

French dairy giant Danone has responded to charges that it is engaged in over-optimistic performance forecasting.

By Leonie Barrie

French dairy giant Danone has refuted charges it is engaged in over-optimistic performance forecasting and said trimming its full-year sales guidance today (18 October) should not be blown out of proportion.

This morning, announcing its Q3 results, Danone forecast like-for-like sales of between 2.5% and 3% for fiscal 2019, compared to a prior estimate of 3%. However, the recurring operating margin target was kept at 15%.

Announcing a group like-for-like sales increase of 3% for the quarter – short of the market consensus for a 3.8% rise – the company blamed relative underperformance in its essential dairy and plant-based and waters businesses for the shortfall.

In a post-results call with analysts, the Activia yogurt maker defended its performance and said its new guidance was realistic.

Asked by one analyst whether missing guidance was the result of “over-optimistic forecasting” and whether it needed to take a “more conservative approach,” chief financial officer Cecile Cabanis said: “I don’t think your comment is fair.”

She added: “We need to make sure what we are doing is creating value and not just hitting the quarter’s numbers.”

Cabanis said its waters business suffered from soft demand in Europe, largely because the summer was not as hot as the previous year’s.

“The weather in Europe was what it was,” she said.

Cabanis said the company’s guidance for 2019 is based on realistic performance objectives.

“[There should be] growth in Europe and the US should improve. There is also innovation and plant-based will accelerate and water will improve,” she said.

She added: “We are only talking about one quarter from a five-year agenda with very good performance. We need to take the quarter for what it is.”

Cabanis went on: “The fundamentals of the business continue to be there. Let’s not be caught [up] in the quarter headlines.”

Overall, the company’s Q3 performance and guidance received a lukewarm response from analysts.

Writing earlier today, Sanford Bernstein analyst Andrew Wood arguably summed up their mood. 

He said: “Danone’s LFL [like-for-like] growth accelerated in Q3, but fell well short of our and consensus expectations and led to a cut to FY growth guidance.

“Investors should not over-react to this miss as weather impacts on water were a major factor, and the new guidance still assumes a further nice acceleration in Q4.”

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