Danone: semi-skimmed
Cost cutting and acquisitions are delivering results, but there is more to do
Healthy food fads reached their natural conclusion this year with the Silicon Valley trend for eating nothing at all. The world’s biggest consumer goods companies might be excused for not seeing an obvious profit in extreme fasting. Far harder to forgive their inertia when faced with the boom in gluten-free, lactose-free diets.
Danone, the world’s largest yoghurt maker, bore the scars of these in last year’s financial performance. This year it is looking far healthier. Third-quarter results on Tuesday showed sales topping expectations at 4.7 per cent. Shares, already up on news of US activist interest, are at a record high.
The French company’s expensive acquisition of US health-food company WhiteWave gives it access to plant-based alternatives to the dairy products that are losing favour. Plans to cut fat from the balance sheet are also in progress.
It is too soon to declare a turnround. Growth is still patchy; sales in the US and Europe, collectively 60 per cent of the group total, were broadly flat. The driver is China, where the relaxation of the one-child policy helped increase sales of infant formula by a startling 50 per cent. Relying on one country for growth is precarious.
More promising is the focus on raising operating margins, already up 81 basis points over the year to 14 per cent. Danone could afford to be lazy about costs when emerging markets propelled the top line. As sales slowed, that was no longer the case. Plans to cut €1bn of costs by 2020 fit with the aim of raising the operating margin to 16 per cent. The target is shy of Nestle’s plan to reach 17.5 per cent or more, but it is a step in the right direction.
One question: where is hedge fund Corvex in all this? The changes preceded news of the activist’s $400m stake. That sum may be small for a €44bn group, but Third Point’s noisy interest in Nestlé set a tone some expected to be echoed. Corvex may see nothing to shout about. Unlike a diet, Danone’s health kick has a good chance of achieving lasting results.