April 15, 2015 / 6:23 AM / 5 years ago

UPDATE 2-Danone shares at record after first-quarter sales beat expectations

* Sales 5.47 bln euros, up 4.8 pct like-for-like vs f’cast 4.6 pct

* Baby food sales up 11.6 pct, dairy up 0.2 pct

* Keeps 2015 goals, sees Europe dairy volumes stable by year-end

* Shares up 1.6 percent at record high (Adds CFO and analyst comments, share price)

By Dominique Vidalon

PARIS, April 15 (Reuters) - French foods group Danone has beaten sales expectations on the back of a recovery in baby food demand in Asia and robust growth in bottled waters, sending its shares to a record high.

The world’s largest yoghurt maker, with brands including Activia and Actimel, has been seeking to rebuild its position in China after an infant formula product recall in Asia in 2013.

It has also been grappling with weak consumer spending in key European markets, but Wednesday’s first-quarter update points to the success of a growth plan led by Chief Executive Emmanuel Faber, who took over in October last year.

“This first set of results makes me strongly confident that Danone is on the right track to reach a decisive milestone in 2015,” Faber said in a statement. Danone shares were up 1.6 percent at a record 65.85 euros by 0943 GMT.

The company, which competes globally with the likes of Nestle and Unilever, posted a 4.8 percent rise in underlying sales, compared with a company-compiled average of estimates of 4.6 percent, and said its European dairy business was seeing a significant improvement in gross margin.

Finance chief Cecile Cabanis told analysts the goal was still to stabilise European dairy volumes by end-2015 or early 2016.

Total sales, which include the effects of foreign exchange fluctuations, reached 5.47 billion euros ($5.8 billion), a rise of 8.1 percent on a reported basis.

Economic conditions looked set to stay difficult, however, with deflationary consumer trends continuing in Europe. Danone kept its 2015 target of like-for-like sales growth of between 4 and 5 percent and stuck to a forecast for a slight rise in its 2015 operating margin from 12.59 percent in 2014.

Baby food sales rose 11.6 percent in the quarter, broadly in line with expectations for 12 percent growth. In China, which contributes 7 percent of group sales, demand for ultra-premium baby food brands continued to benefit from Chinese imports of western European infant milk formula and strong online sales.

Sales of the less premium Dumex formula remained well below levels seen in early 2013, said Danone, which makes 52 percent of revenue in dairy.

Dairy product sales rose 0.2 percent in the quarter after falling 1 percent in the fourth quarter of 2014.

“Fresh dairy continued to be a drag but Q1 performance avoided a second quarter of negative growth,” said Bernstein analyst Andrew Wood.

The dairy sales rise reflected a 4.8 percent fall in sales volume, partly offset by 5 percent rise in prices. In Europe, dairy sales were still down by around 4 percent in the quarter. ($1 = 0.9410 euros) (Editing by James Regan and David Holmes)

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