July 25, 2014 / 6:41 AM / 3 years ago

UPDATE 2-Danone keeps goals, denies strategic review plan

* H1 operating margin 11.27 pct vs 13.34 pct in H1 2013

* Q2 like-for-like baby food sales -9.2 pct vs -7.7 pct in Q1

* Keeps full year profitability and sales goals

* CFO says Danone 2020 plan is “not a strategic review” (Recasts with CFO call to analysts, shares, analyst comments)

By Dominique Vidalon

PARIS, July 25 (Reuters) - Food group Danone is confident of hitting full-year targets despite a weak first-half as it looks to a stabilisation of European dairy revenues this year and the launch of new baby food products in China.

The world’s largest yoghurt maker posted a worse-than-expected 10 percent fall in first-half operating profit on Friday after sluggish sales of baby food in Asia and dairy products in Europe took their toll.

Danone, whose recent woes have refocused investor attention on whether it can survive on its own, said it was working on a plan to ensure long-term growth but insisted the project was not a “strategic review” involving any major deals.

The Wall Street Journal said earlier this week that Danone was looking at whether to pursue a big alliance to gain more muscle on the global stage.

Danone, which competes with the much larger Nestle and Unilever, said it still expected to achieve like-for-like sales growth of 4.5-5.5 percent this year with its operating margin changing by no more than 20 basis points from 13.19 percent in 2013.

Danone is aiming to rebuild its position in China after an infant formula product recall in Asia last year. The dairy sector, which provides 60 percent of revenue, has been hit by a spike in milk prices and weak consumer spending in austerity-hit Europe, where Danone plans to shut three plants.

By 1153 GMT Danone shares were down 0.29 percent at 55.78 euros, broadly in line with the European consumer goods sector .


Analysts have been sceptical that Danone will see a large enough rebound in the second half to meet its full-year targets, and Friday’s comments did not entirely dismiss those fears.

“The confirmation of the guidance should not rule out the main short-term concerns of the market about a warning,” Natixis analyst Pierre Tegner said.

Danone’s first-half operating profit fell 10 percent to 1.180 billion euros ($1.6 billion), with like-for-like sales rising 2.2 percent to 10.467 billion.

Its first-half operating margin fell 159 basis points to 11.27 percent of sales. The results were below a company compiled consensus of analysts for first-half operating profit of 1.208 billion euros and an operating margin of 11.40 percent.

Second quarter figures showed a slowdown in dairy sales as well as a worse than expected fall in baby food sales. The water and medical nutrition units put in robust performances.

Danone’s dairy division sales rose 2.4 percent in the second quarter after 3.9 percent growth in the first.

This reflected a 7.4 percent fall in sales volumes, offset by a 9.8 percent rise in prices. The volume fall came from price rises that started in the second half of 2013 in response to higher-than-expected milk prices, particularly in Russia.

China contributes 6 percent of group sales but Danone faced a variety of problems there last year, including an infant formula product recall in August 2013 due to a health scare.

Baby food sales fell 9.2 percent in the second quarter, worse than the 7.1 percent drop analysts had expected. Terisse reiterated that baby food sales volumes in China will be back to 70 percent of their pre-crisis levels by the end of 2014.


Danone’s challenges have refocused analysts attention on its relatively small size compared to giants such as Swiss rival Nestle. Analysts have cited Nestle and Pepsico as the most likely potential buyers.

Danone CFO Pierre-Andre Terisse said on Friday the company was working on an internal plan dubbed “Danone 2020” to ensure long-term growth, but stressed during a conference call with analysts: “There is no strategic review at Danone.”

The plan’s highlights were given to analysts at a June seminar in New York. It mainly entails organisational changes to simplify and accelerate decision-making and adapt to competition, notably in Europe, plus the centralisation of procurement to reduce exposure to dairy price volatility.

A group spokeswoman told Reuters this week that Danone would update its top managers about the plan at their annual gathering in Evian, France, in September.

$1 = 0.7426 Euros Reporting by Dominique Vidalon; Editing by Andrew Callus and David Clarke

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