Danone Expects Dairy to Improve After Sales Beat Estimates

Danone reported first-quarter sales that beat analysts’ estimates and forecast improvement in the dairy business, sending shares up the most in two months.

Like-for-like revenue climbed 3.5 percent in the first quarter, the company also said Tuesday. Analysts expected 3.2 percent, according to a Bloomberg survey. Dairy volumes will accelerate in the second quarter, Chief Financial Officer Cecile Cabanis said in a conference call, after being weighed down in the first three months of the year by a slump in Brazil and declines in Russia and Europe.

Chief Executive Officer Emmanuel Faber is relaunching Activia yogurt and Actimel fermented milk products to boost sales amid sluggish consumption in western Europe. He has promised revenue growth at the fresh dairy unit to 3 percent to 5 percent by 2020. 

Dairy volumes were weighed down by a slump in Brazil and declines in Russia and Europe in the first quarter, but will accelerate in the second quarter as Europe sequentially improves, Chief Financial Officer Cecile Cabanis said in a conference call. 

In the U.S., the dairy business has accelerated to mid-single digit growth and will continue at that rate in coming quarters, Cabanis also said. Danone said it still sees big potential in the U.S. market.

“The market will focus on the bit better-than-expected organic sales growth in dairy,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. “Danone saying organic sales growth is improving in Europe is a positive, and the relaunches are expected to give them a fill-up.”

Still, dairy volumes are declining. Shipments dropped 2.1 percent in the first quarter, compared with a 0.6 percent decline in the fourth quarter of 2015 and a 4.8 percent drop in the year-earlier period.

“Danone expects European dairy to get toward flat by the end of the year in organic sales growth terms,” said Robert Waldschmidt, an analyst at Liberum Capital in London. “This means volumes will likely remain negative in Europe this year, albeit much improved.”

Danone reiterated its forecast for sales growth of 3 percent to 5 percent on a like-for-like basis this year after a 4.4 percent increase in 2015, the smallest in six years. The company also predicted improvement of its trading operating margin.

“The second quarter will accelerate, then accelerate a bit less and maybe be stable in the fourth quarter,” Cabanis said. “But overall, today, we’re spot on with our agenda and guidance. There’s absolutely no reason to change that.”