Rise in baby food and dairy sales boosts profits for Danone

Danone, the owner of Evian bottled water and Activia yogurt, has reported second-quarter sales growth that beat estimates as the company sold more baby-nutrition products in China and dairy sales rose more than forecast.

Like-for-like revenue gained 6.5 per cent from a year earlier, the Paris-based company said in a statement today.

Total sales increased 6.7 per cent to €5.72 billion. Volume jumped 4.1 per cent, the strongest gain in the past eight quarters, the company said.

“It’s certainly a good set of figures,” Jon Cox, head of European consumer equities at Kepler Cheuvreux in Zurich, said.

"Danone is the fastest-growing big food company in Europe at the moment and has a great portfolio, which is reflected in the numbers. I expect consensus expectations to move higher. Dairy is better than what the market expected."

Sales of baby-nutrition products have surged in China as a spate of food-safety scandals has fueled frenzied demand for foreign formula. Bulk purchases by concerned mothers have opened the way for the top four international producers to control more than a third of the industry.

Organic sales at Danone’s baby-nutrition unit rose almost 14 per cent in the quarter, beating analysts’ estimates. Organic, or like-for-like, sales exclude acquisitions, disposals and currency fluctuations.

Stock jumps

Danone jumped as much as 3.6 per cent to €59.50, the highest intraday price since May 28th, and was trading up 3.5 per cent at 9.25am in Paris. The stock has gained 19 per cent this year, valuing the company at €37.8 billion.

The company was among baby-formula producers targeted this month in a Chinese government price-fixing investigation.

Danone announced within days that it would cut prices of all its Dumex- branded products by 5 per cent to 20 percent. Mead Johnson Nutrition Co and Nestle also said they'd reduce the amount they charged customers in the country.

Greek Yogurt Sales at Danone’s dairy division gained 2.6 per cent on an organic basis as people ate more Greek yogurt in the US and Prostokvashino products in Russia, offsetting weak demand in Europe.

Danone is expanding its dairy business in Russia and the US as western European consumers switch to cheaper private labels in the debt-burdened region. The median estimate of nine analysts was for dairy organic sales growth of 1.9 percent.

Danone is off to a strong start in 2013 in an economic and consumption context that remains difficult in Europe, and in some cases volatile in emerging countries,” chief executive Franck Riboud said. “In Europe, simplifying our model and reducing costs remain a priority.”

Operating profit as a proportion of sales narrowed 49 basis points to 13.3 per cent in the first half because of price adjustments on dairy products in Europe, Danone said.

The margin is in line with what the company forecast, even after input costs increased more than expected.

Danone will continue to reduce costs to “regain competitiveness in Europe,” the CFO said. ‘

Danone managed to stabilize or increase its market share in Europe, which remains “difficult”, helping improve volume growth in the region in the second quarter. Like- for-like volume declined 1.6 per cent in Europe in the quarter, the company said today.

Danone will team up with coffee chain Starbucks to sell Greek yogurts in the US starting next year, and it’s “positive” about Russian dairy consumption, Yves Legros, head of operations in Russia, told reporters in Moscow this month. Russia and the US account for 18 percent of Danone’s revenue.

Bloomberg