Danone cuts outlook

Danone cuts outlook

French dairy giant Danone missed third-quarter sales expectations and lowered its full-year outlook, blaming the recall of infant formula in Asia sparked by Fonterra's whey powder recall.

In a sales update released this morning (16 October), Danone missed like-for-like sales expectations in the quarter, with comparable sales up 4.2% compared to consensus expectations of 4.8%. Volumes and reported sales also missed expectations at 1.6% and 0% respectively, compared to consensus analyst forecasts of 3.6% and 2.8%.

The company said the sales softness was the result of the impact of the "false safety alert in Asia" which resulted in "significant losses in sales, earnings and cash-flow".

Danone baby food on sale in China and New Zealand was pulled from shelves in August after Fonterra, a supplier of ingredients to the Dumex and Karicare brand owner, warned some of its whey protein concentrate contained a bacteria that could cause botulism. While it transpired the scare was a false alarm, Danone's result was hit by the immediate impact of the recall.

The company also implied the damage done to Danone's reputation was continuing to drag on sales, but emphasised it is working to gradually restore consumer confidence. "Action plans to restore sales are being deployed in affected markets and are generating results effectively but very gradually," Danone said.

Danone and Fonterra are currently in a "dispute resolution process", with the French group seeking damages after the recall.

Danone reduced guidance for sales to 4.5%-5%, down from "at least" 5%. The company also lowered its margin outlook to -80 basis points, down from -30bps to -50bps.

Danone is the latest of the European food majors to issue a profit warning - following in the footsteps of both Nestle and Unilever.

Show the press release

Sales in the third quarter and first nine months of 2013 

October 16, 2013 

Organic growth for the first nine months: +5.5%[1]

Strong underlying dynamics across all businesses 

Impact of false safety alert in Asia  

2013 targets adjusted 

• Sales[2] for Q3 2013 are up +4.2% like-for-like[1] and steady as reported, despite unfavorable exchange rates and the major impact of the recall affecting selected infant formula products in Asia. 

• Figures confirm the strong underlying dynamics observed in the first half: Europe continues to stabilize (-0.9%[1]), while sales are up +7.8%[1] in the North America, CIS, Asia-Pacific, Latin America and Africa/Middle East regions. 

• Focusing on Asia, the false alert issued by Fonterra concerning certain ingredients supplied to Danone triggered the recall of selected infant formula products and led to significant losses in sales, earnings and cash-flow. Action plans to restore sales are being deployed in affected markets and are generating results effectively but very gradually. 

• As a result, the Group has adjusted its 2013 targets: sales[2] growth between +4.5% and +5%[1], trading operating margin down -80 bps[1], free cash-flow between €1.5 and €1.6 billion excluding exceptional items[3]

• Beyond these short-term developments, the Group is confident in both its ability to recover its positions in affected countries and in the strength of its growth model. 

Original source: Danone