Investors applaud Danone’s strong start to 2022 and discuss M&A

  • First quarter sales of €6.236 billion, up 7.1% lfl vs. estimate of 5.5%
  • Maintains 2022 sales growth, profitability targets
  • Shares up 8%, extending gains on M&A talks

PARIS, April 20 (Reuters) – Shares in Danone (DANO.PA) rose more than 8% on Wednesday, lifted by a media report of interest in the merger of French dairy rival Lactalis and higher sales. stronger than expected in the first quarter, which reassured investors about its recovery. plan was on track.

Despite a robust start to the year, the maker of Activia yogurts and Evian water kept its 2022 financial targets unchanged.

Danone’s new boss, Antoine de Saint-Affrique, is pursuing a recovery plan amid rising input costs and uncertainty caused by the Russian invasion of Ukraine, which forced Danone to suspend investments in Russia. Read more

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According to an article in the economic daily La Lettre A, the unlisted company Lactalis has been studying for months a possible total or partial takeover of Danone. Lactalis was not immediately available for comment.

A Danone spokesperson said it had no plans to sell any of its three main divisions: dairy and plant-based products, infant formula and bottled water.

Asked about the reported interest from Lactalis, Danone CFO Juergen Esser told analysts: “We are working very actively to fix our underperforming assets. We will update you as soon as there is something new.”

At an investor day in March, Saint-Affrique said there was “nothing wrong” with Danone’s three businesses, and that the key to fueling sales growth was improving the execution, invest enough in good brands and innovation, and divest from underperforming assets in these businesses.

Q1 SALES SURPASS EXPECTATIONS

The logo of French food group Danone is seen at the company’s headquarters in Rueil-Malmaison near Paris, France, February 20, 2022. REUTERS/Gonzalo Fuentes

Danone, which is the world’s largest yogurt maker, said like-for-like sales rose 7.1% to 6.236 billion euros ($6.74 billion) in the first quarter, as the was expected to rise 5.5% in a consensus compiled by the 19-year-old firm. analysts.

This reflects favorable comparables a year ago, price increases, stronger demand for infant formula in China, and post-COVID improvement in demand for water consumed outside the home. Esser said Danone was ready for “further rounds (of price increases), if necessary.”

“We won’t get too carried away for a good quarter, but this is a solid start for its new ‘Renew Danone’ strategy,” RBC Europe analysts said.

“Prices remain the main driver of growth. However, better than expected volumes are a good indication of Danone’s pricing power and a change from its traditionally disappointing volume performance,” they added.

On the negative side, Oddo analysts noted that volumes fell 1.8% in the quarter in the dairy and vegetable division, with supply issues affecting Spain and the war in Ukraine weighing on volumes. in Russia.

Danone expects a 2022 operating margin above 12% versus 13.7% in 2021, with like-for-like sales growth driven by prices in a range of 3% to 5% versus 3.4% in 2021.

This assumes 100% reinvestment of its Local First savings program, higher productivity than last year and a “mid-teens” level of input cost inflation.

Saint-Affrique replaced Emmanuel Faber, who was abruptly ousted as CEO last year after clashes with some board members over strategy and activist fundraising calls for he resigns due to the group’s lackluster performance compared to some rivals.

($1 = 0.9246 euros)

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Reporting by Dominique Vidalon Additional reporting by Matthieu Protard Editing by Elaine Hardcastle and Mark Potter

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