Food group Danone shrugs off weaker infant formula demand

French food group Danone shrugged off a slow start to the year saying it expected sales growth to accelerate after setbacks in China and Morocco.

The world’s biggest yoghurt maker said it was confident of delivering its financial targets for 2019 and 2020, even after first-quarter sales were hit by weaker demand for infant formula products in China and a consumer boycott in Morocco.

Danone said underlying sales in the first three months of the year rose 0.8 per cent to €6.14 billion, down from 2.4 per cent growth in the fourth quarter of 2018.

Its shares were down 1.6 per cent in morning trading.

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"The start of the year is relatively modest, as expected, but this puts the spotlight on very ambitious targets. The second half will be crucial," said Roche-Brune Asset Management fund manager Gregoire Laverne.

Accelerate

Danone said it expected sales growth to accelerate from the second quarter and that the sale of loss-making arm EarthBound Farm would help margins later this year.

The company is targeting group like-for-like sales growth of about 3 per cent and an operating margin above 15 per cent for 2019. That in turn would put the maker of Activia yoghurt and Evian water on track for its 2020 goals of an operating margin above 16 per cent and like-for-like sales growth of 4-5 per cent.

"We expect to exit the year 2019 with fourth quarter sales growth consistent with our 2020 objectives," said chief financial officer Cecile Cabanis, adding margin growth would be stronger in the second half than in the first.

Morocco boycott

Danone’s waters division had a solid first quarter, while growth at the essential dairy and plant-based business was hit by the ongoing Morocco boycott and the pruning of the premium dairy portfolio in North America.

Meanwhile, sales of Danone’s early life nutrition products in China fell around 15 per cent, partly due to a lower birth rate in the country and high year-ago comparables.

That followed declines of 10 per cent in the fourth quarter of 2018 and 20 per cent in the third quarter.

China is an important source of growth for Danone, contributing about 30 per cent of sales to the early life nutrition business, which makes infant formula and general baby food products.

Cabanis reiterated Danone expected the business in China to return to growth in the second half of 2019, helped by a focus on more premium products and a bigger distribution range.– Reuters