Danone to Cut Costs as Dairy Business Faces Pressures

Food group Danone plans to cut costs by 1 billion euros ($1.1 billion) over the next three years, saying the turnaround of its European dairy business was taking longer than expected while tough conditions in China would endure in 2017.

The world's largest yogurt maker was cautious about the current year, given deflationary consumer trends in Europe and rising milk prices.

Danone said it would review its financial goals after closing its $10 billion acquisition of U.S. organic food group WhiteWave, which is expected in the first quarter and which should boost earnings.

The owner of Evian water and Activia yogurt is targeting earnings per share growth of above 5 percent in 2017, excluding WhiteWave. It achieved EPS growth of 9.3 percent in 2016.

The new savings plan - called "Protein" by Danone - will aim to cut spending on marketing and general expenses such as corporate travel, and will be partly used to fund future growth.

Chief Financial Officer Cecile Cabanis told analysts that Danone eyed "moderate" top line sales growth for 2017.

Emmanuel Faber, chief executive since October 2014, has vowed to return Danone to "strong profitable and sustainable growth" by 2020.

He is reviewing its business in China and is overhauling its dairy division, where it has cut costs and launched new products.

Sales Growth Slows

Danone's like-for-like sales in 2016 rose 2.9 percent to 21.94 billion euros ($23.22 billion), a slowdown from 4.4 percent growth in 2015. Danone had warned in December that growth would be below its original target of 3-5 percent.

The slowdown reflected tough market conditions in Spain and problems with the relaunch of its Activia brand in Europe, which held back dairy sales growth in the final quarter, while pressures in the Chinese market weighed on baby food sales.

The market for baby food products in China has been hit by earlier safety scandals, while China has also tightened regulations on the purchase of foreign goods over the Internet to favor domestic companies.

British consumer goods company Reckitt Benckiser is expanding in the baby food formula market after agreeing to buy Mead Johnson Nutrition for $16.6 billion.

Danone shares were up 0.1 percent in mid-session trading.

"We are strongly encouraged that management is focused on driving sustainable profit growth as opposed to top-line growth at any cost," said Liberum analysts, who maintained a "Buy" rating on Danone shares.

($1 = 0.9451 euros)