PARIS (Reuters) - Food group Danone struck a confident note on prospects for 2019 after strong fourth-quarter sales, although some disappointment over margins weighed on the company’s shares.
Danone, which bought U.S. organic food group WhiteWave in 2017, delivered higher 2018 earnings and stronger-than-expected fourth quarter sales despite a consumer boycott in Morocco and weaker demand for infant formula products in China.
Danone, the world’s largest yoghurt maker, also stabilized its Activia yoghurt brand in Europe in the final quarter of 2018, reversing years of decline.
Its shares fell around 1 percent as the 2018 operating margin slightly missed market expectations, held back by an impairment charge tied to the Moroccan boycott.
“Danone’s figures are a mixed bag. On the one hand, the sales figures show satisfactory progress but on the other hand the margins were a bit weaker than expected,” said Gregoire Laverne, fund manager at Roche Brune Asset Management, which recently sold its Danone shares.
Danone Chief Executive Emmanuel Faber told analysts the company’s loss-making organic fresh produce division Earthbound Farms was under “intense strategic scrutiny.”
There has already been speculation that Danone could sell Earthbound Farms, which it inherited when it bought WhiteWave.
Danone aims to boost margins via WhiteWave because of its generally affluent clientele.
For 2019, Danone is targeting like-for-like sales growth of around 3 percent and an operating margin above 15 percent. The company said this meant it was on track to deliver on 2020 goals for an operating margin above 16 percent of its sales and like-for-like sales growth of 4-5 percent.
Q4 SALES GROWTH BEAT EXPECTATIONS
Danone’s like-for-like sales in 2018 rose 2.9 percent to 24.651 billion euros ($27.8 billion), up from 2.5 percent in 2017 and slightly above analysts’ estimates for 2.8 percent.
Fourth-quarter sales growth alone accelerated to 2.4 percent from 1.4 percent in the third quarter, beating analysts’ expectations of 1.5 percent growth. The strong performance included robust sales at the group’s Water division and Medical Nutrition business.
But the 2018 operating margin, up 51 basis points to 14.45 percent of sales, was below expectations for 14.64 percent.
Sales of Danone’s Early Life Nutrition products in China fell around 10 percent in the quarter due to a lower birth rate and tougher year-ago comparables, but this was less than the 20 percent decline in the third quarter.
China is an important source of growth for Danone, contributing about 30 percent of sales of the Early Life Nutrition business, which makes infant formula.
Danone reiterated it expected this business in China to return to growth in the second half of 2019. For the full year, sales should be flat in China.
In September, Danone announced measures in Morocco to regain consumers’ trust, including price cuts. Fourth-quarter sales in Morocco were down 35 percent, but Danone expects to benefit from more favorable comparables from April.
The boycott in Morocco started via social media last year over what protesters said were unfair prices set by big companies.
Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Jane Merriman
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