Danone reports accelerated sales growth in Q3, driven by demand for infant formula in China

17 Oct 2017 --- The world’s largest yogurt maker, Danone, has reported better-than-expected Q3 sales results with a 4.7 percent increase, driven by the demand for infant formula and water products specifically in China. The performance came above the company-compiled average of analyst estimates for 2.8 percent growth in group sales. The dairy business improved in the US, where the integration of its acquisition of WhiteWave remained on track. The company also reiterated its full-year guidance.

Consolidated sales were €6,454 million (US$7,599 million), a +4.7 percent “like-for-like New Danone” increase, reflecting a +0.4 percent increase in volume and +4.3 percent increase in value. Reported sales were up +16.6 percent. For the first nine months, consolidated sales stood at €18,582 million (US$21,873 million), up +2.1 percent on a “like-for-like New Danone” basis while reported sales were up +12.0 percent. Danone reaffirmed expectations that it will deliver full-year double-digit recurring earnings-per-share growth at constant exchange rates, above +12 percent.

Commenting on the results, Emmanuel Faber, Chief Executive Officer, says: “As expected, Danone has posted accelerated sales growth in the third quarter. This reflects the strength of our portfolio of cohesive consumer health-focused brands and a solid execution against our strategy, with a step-up in innovation and activation plans. The increase in like-for-like sales has been underpinned by the allocation of additional resources to serve rising demand in Specialized Nutrition, especially in China. Strong headwinds remain in Brazil which continues to impact EDP International negatively. The integration of WhiteWave is on track and starting to deliver results.”

“Our increased resource-allocation ability, served by an adaptive organization, will enable us to pursue our decoupled growth and efficiency agendas to generate profitable growth in the coming periods. This confirms my confidence in meeting our objectives for the year, delivering solid shareholder returns and positioning the Company for long-term sustainable growth, fully embracing the opportunities of the ongoing Alimentation Revolution,” explains Faber.

Specialized Nutrition
Specialized Nutrition sales were up +17.8 percent in Q3 2017 on a “like-for-like New Danone” basis, with a +9.0 percent change in volume and a +8.8 percent change in value. This very strong performance reflects accelerating growth in China as well as progress in Danone’s strategic priorities, such as the expansion of Tailored Nutrition products, which grew at a mid-teen percentage in Q3.

Early Life Nutrition generated growth of over 20 percent, driven by the exceptionally high growth of demand for Danone’s brands in China (above +50 percent), where infant formula category has accelerated, helped by rising birth rates, confirming the rebound of the market observed in Q2 2017.

Early Life Nutrition also reported a solid performance across all of its geographical platforms. Latin America performed well, with sales accelerating sharply over Q2 2017. In Europe, sales trends were up, driven by the UK, Germany, Poland and other key markets.

Waters
As anticipated, Waters posted a strong acceleration in sales growth in Q3 2017, with “like-for-like New Danone” rising +7.6 percent (+6.2 percent increase in volume and +1.4 percent increase in value). This very good performance reflects both a return to growth in China, following the destocking transition period, and continued growth momentum on all other platforms.

Plain waters were up at mid-single-digit percentages, supported by positive trends across regions, as well as efficient brand activation plans aimed at building premium and meaningful brands that are part of consumer lives. After six years of construction and transformation, the upgraded Evian bottling facility was inaugurated in September 2017 as Danone’s first production site to achieve carbon neutrality. In parallel, Aquadrinks stepped up at double-digit driven by successful innovations such as Naranjadas for Villa del Sur Levite brand in Argentina and Sirma in Turkey.

In China, Waters reported double-digit growth against a low basis of comparison last year and benefited from the gradual recovery of its category, and successful brand activation plans to rejuvenate the Mizone core brand. Promising results from new products launched at the end of the second quarter, in particular, Mizone Pro, give Danone confidence in future growth prospects.

Outlook 2017
Cécile Cabanis, Chief Financial Officer, said: “Our trading performance in the first nine months illustrates the progress of our growth and efficiency agendas, which enables us to confirm our guidance for 2017.”

As previously reported, Danone anticipates a year-on-year mid-single-digit rise in the costs of its strategic raw materials. In this context, the Company will continue to strengthen the resilience of its model through a range of initiatives aimed at offsetting inflation and limiting its exposure to volatility in some raw materials while ensuring the competitiveness of its products.

Given this outlook, Danone will continue to prioritize initiatives and resources to accelerate growth, improve margins and strengthen its growth model.

“We will continue to be agile and disciplined in our resource-allocation process to ensure short-term delivery, transformation for the long-term and sustainable value,” adds Cabanis. “This will be aligned with our continued and disciplined resource allocation to promote strategic growth opportunities over short-term tactical allocation.”

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