UPDATE 3-Danone withdraws health claims, cautious on FY

Thu Apr 15, 2010 7:21am EDT

Related Topics

* Q1 sales 3.978 bln euros vs Reuters estimates 3.885 bln

* Q1 like-for-like sales up 7 pct vs 5.9 pct forecast

* Keeps 2010 financial goals, climate still challenging

* Withdraws 2 applications on Activia, Actimel from EFSA

* Shares down 2.4 percent, underperform sector

(Adds CFO, analysts comments, updates shares)

By Dominique Vidalon

PARIS, April 15 (Reuters) - French food group Danone (DANO.PA) withdrew health claim applications on two of its bestselling yoghurts on Thursday and remained cautious on its full-year goals amid a soft economic climate.

The world's largest maker of yoghurts also said first-quarter like-for-like sales grew 7 percent, more than 5.9 percent predicted in a Reuters poll of analysts. But it stuck to its full-year targets of stable operating margin and like-for-like sales growth of at least 5 percent.

Danone, which competes with Nestle (NESN.VX) and Unilever (ULVR.L) (UNc.AS), said it would remove from a European review two applications on health claims it makes on Activia and Actimel, citing confusion about what scientific evidence was required from the company under the process to validate the claims.

The decision comes as several brokers recently voiced concern the European Food Safety Authority (EFSA) might reject Danone's health claims, saying this could hurt the group's image and stock price. [ID:nLDE62F1A0]

Oddo Securities analyst Pierre Tegner said that Danone's decision to withdraw from the EFSA process was "smart" as it was "wiping out the stick that could beat them".

Activia, a yoghurt that Danone claims aids digestion, and Actimel, a dairy drink it says helps strengthen the body's defences, had combined 2009 sales of 3.7 billion euros.

Danone can still print the health claims on Activia and Actimel but it has stopped advertising the claims in some countries including France and Britain, where the products improved their performance in the first quarter 2010 from the last quarter 2009.

The outcome of the review is closely watched by investors as validation of Danone's health claims would be a strong marketing tool for the company, whose strategy focuses on well differentiated dairy brands with a health proposition, sold often at a higher price.

Danone stock, which has gained nearly 9 percent this year, was down 2.4 percent at 45.49 euros by 1025 GMT, while the European Food and Beverage index .SX3P was off 0.89 percent as investors focused on the guidance and implications from the claims withdrawal.

Chief Financial Officer Pierre-Andre Terisse told analysts that Danone's decision to eventually re-apply for the health claims would depend on whether the EFSA's requirements to validate the claims were sufficiently clarified at a meeting slated for June 1.

For Danone, the EFSA review process has not been a smooth road. In April 2009, it already withdrew its applications regarding Activia and Actimel as there was confusion about what data the EFSA needed. Danone filed new applications covering the two products late last year and early this year.

STRONG DAIRIES

Quarterly sales rose 8.3 percent on a reported basis to 3.978 billion euros, with all divisions contributing, the owner of Evian and Badoit bottled water and Bledina baby food said.

The revenue figure beat expectations of 3.885 billion euros in a Reuters poll of nine analysts.

"Our performance in the first quarter, coupled with our leading market positions and brands, allow us to confirm our targets for 2010," Chairman and CEO Franck Riboud said in a statement.

Danone said it expected to continue facing a "challenging financial, economic and social environment in 2010, with continued difficult consumption trends in western economies, weak emerging currencies and inflation of raw materials".

"We accept that it is early in the year and management is reluctant to increase guidance at this point ... but we continue to believe that Danone's 2010 guidance is very prudent" said Sanford C. Bernstein analyst Andrew Wood.

Danone achieved a 12.5 percent rise in volume sales of its dairy products.

All regions delivered double-digit sales, except Western europe where sales were stable compared with the first quarter 2009. Dairies make the bulk of group revenue.

In 2009, Danone passed on to its customers lower milk prices through the so-called Reset initiative, whose benefits only became fully visible in the second half of the year and continued in the first quarter 2010. ($1=.7322 Euro) (Reporting by Dominique Vidalon; Editing by Jon Loades-Carter)

FILED UNDER: