A cut in Danone’s medium-term sales guidance has proved disappointing for the market, with analysts claiming that management gave “conflicting messages”.
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The French dairy giant yesterday (18 November) cut its medium-term like-for-like annual sales growth target to “at least” 5%, compared to a previous forecast of 8-10%.
Bernstein analyst Andrew Wood said the downbeat guidance was “a disappointment to market expectations”, adding that most investors anticipated a guide in the “6-8% range, not 5%”.
“Overall, we are disappointed by Danone’s medium-term operating guidance…and we believe the market is likely to be also,” Wood said. “We believe that there appears to be conflicting messages being given by management, based on the positive tone throughout most of the investor seminar, but also at recent conferences.”
He added: “We feel that management is being cautious in guidance, and possibly under-promising to potentially over-deliver, which in itself is not a bad strategy. Nevertheless, we expect a negative reaction for the stock to yesterday’s news.”
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By GlobalDataIndeed, shares in the French dairy giant had dropped 3.2% at 10.56am (GMT), falling to EUR44.155 (US$65.59).
In a statement following an investor seminar in Amsterdam, the company said it would increase free cash flow to EUR2bn by 2012 and also reconfirmed its 2009 objectives.
Like-for-like sales growth is expected to be close to 4% in the second half of 2009, with a like-for-like improvement of EBIT margin of between 60 and 70 basis points for the full-year.
Danone also reconfirmed expectations of a 10% growth in underlying fully-diluted earnings per share for the full-year and double-digit growth of the free cash flow from operations.
“The end did not jive with the whole,” Wood added. “Management spent much of the
investor seminar describing, quite impressively, the inherent strength of the business. Consequently, the downbeat guidance was perhaps even more disappointing.
“It suggested that Danone, as is typical in these types of seminars, was guilty of being too upbeat in the presentations, showing the good businesses and accentuating the positive, rather than giving a more balanced view of all of its businesses.”
