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Danone Shares Drop in Paris on Falling Fresh Dairy Shipments

April 16, 2014


Fresh dairy volume fell 3.7% in the quarter to the lowest level in more than a decade as Danone raised prices and introduced more expensive products, partly because of milk inflation in Russia.

Danone fell the most in six weeks in Paris after the yogurt maker’s price increases weighed on the amount of dairy products it sold in the first quarter.

The shares fell as much as 2.4 percent, the biggest intraday drop since March 3. They traded 1.1 percent lower at 52.67 euros as of 4:37 p.m. in the French capital.

Fresh dairy volume fell 3.7 percent in the quarter to the lowest level in more than a decade as Danone raised prices and introduced more expensive products, partly because of milk inflation in Russia, the Paris-based company said today in a statement. Dairy volume will worsen in the second quarter before starting to improve in the third, said Chief Financial Officer Pierre-Andre Terisse. Additional price hikes are planned as dairy margins are under pressure, the CFO said.

The volume decline was "disappointing," Andrew Wood, an analyst at Sanford C. Bernstein, said in a note. "For another potentially disappointing year, current valuations do not look attractive."

Like-for-like sales increased 2.2 percent in the first quarter, matching the median of 14 analysts’ estimates compiled by Bloomberg. Revenue at that level, which is adjusted for acquisitions, divestments and currency shifts, will rise 4.5 percent to 5.5 percent this year, Danone also said.

Chinese Woes

Danone is seeking to rebuild its infant-nutrition unit in China after a product recall and bribery claims at its Dumex baby-milk business contributed to the first annual earnings decline in more than a decade. The maker of Evian bottled water is also working to revive its flagging European business.

Total sales in the three-month period amounted to 5.06 billion euros ($7 billion), trailing the 5.15 billion-euro median of analysts’ estimates. Exchange-rate movements reduced revenue by 8.9 percent, the maker of Activia yogurt said. Volume fell 1.9 percent. Analysts predicted a 0.1 percent decline.

"Demand will remain similar to 2013, with sluggish trends in Europe, significant carry-over of milk price inflation and persistently high exchange-rate volatility in emerging markets, resulting in higher inflation in those countries," Danone said.

Revenue growth and profitability will be stronger in the second half than the first, the company said, repeating an earlier forecast. The full-year operating margin may widen or narrow as much as 0.2 percentage point on a like-for-like basis, Danone said.

Price-Mix Effect

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