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February 15, 2012

FRANCE: Danone forecasts slower sales growth, flat margins

Danone has forecast slower sales growth and flat margins for 2012 after the French food giant said it saw no improvement in trading conditions this year.

By Dean Best

Danone has forecast slower sales growth and flat margins for 2012 after the French food giant said it saw no improvement in trading conditions this year.

The maker of Activia yoghurt said it expects margins to be flat and sales to increase by 5-7% this year. In 2011, trading operating marging was up 20 basis points, while sales rose 7.8% on a like-for-like basis.

Rising baby food and water sales offset a weaker performance from dairy to drive Danone’s profits in 2011.

Danone reported a 4.5% increase in underlying net income to EUR1.75bn for 2011. Reported net income fell 10.9% to EUR1.67bn but the figure was hit by financial items and a higher tax bill. 

Operating income, meanwhile, was up 8.4% at EUR2.73bn. Danone reported a 9.2% increase in trading operating income, which excludes costs like impairment charges and restructuring expenses, to EUR2.84bn and said its trading operating margin was up 20 basis points.

The company’s net sales climbed 13.6%, or 7.8% on a like-for-like basis, to EUR19.32bn. Volumes increased 3% due to growth from Danone’s baby food, medical nutrition and waters units.

Danone saw its fresh dairy volumes fall 0.1% in 2011 after a 1.7% drop in the last three months of the year.

However, excluding Danone’s operations in Russia, where it is integrating its recent acquisition Unimilk into the business, its fourth-quarter fresh dairy volumes increased 0.6%.

Sanford Bernstein analyst Andrew Wood said Danone’s fourth-quarter fresh dairy volumes were below its expectations.

“Fresh dairy fourth-quarter organic growth was uninspiring, coming in below already depressed expectations. Volumes continued to be negative, for the third consecutive quarter, and were worse than our expectations. We expect a slow recovery in 2012 as pricing rolls over, but not until the second half,” he said.

Chairman and CEO Franck Riboud called 2011 “both tough and positive”. He said: “Tough because of the increasingly gloomy macro-economic environment in Europe, plus a steep rise in commodity prices that put pressure on our costs and entire organisation. But also positive because we came through successfully: First and foremost, our results made 2011 a successful year, as we once again met all our targets.”

Shares in Danone were up 0.9% at EUR49.44 at 09:15 CET.

Click here for the full statement and check back later for coverage of Danone’s analyst conference call.

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