Danone First-Half Earnings Decline 20% on Surge in Milk Costs

July 25, 2014 10:46 AM

Danone, the world’s largest yogurt maker, reported a 20 percent decline in first-half earnings, weighed down by a surge in milk costs.

Trading operating profit fell to 1.18 billion euros ($1.6 billion), the Paris-based company said today in a statement. That compares with the 1.21 billion-euro average of eight analysts’ estimates compiled by Bloomberg.

The maker of Actimel yogurt has raised prices to offset an 18 percent increase in milk costs, leading consumers to pare back on dairy purchases. Danone announced plans to cut 325 jobs across Europe last month as it closes factories in the region to adjust.

"We operate in a global environment that is still subject to risks and upheavals, and it presents us with challenges every day," Danone Chairman Franck Riboud said in the statement. "We will stay focused on reaching our 2014 targets."

Second-quarter like-for-like sales advanced 2.3 percent from a year earlier. Analysts expected a 2.6 percent gain, according to the median of 10 estimates compiled by Bloomberg News. Dairy volume declined 7.4 percent, worsening from the first-quarter’s 3.7 percent drop as the yogurt maker imposed additional price increases.

Baby Food

Infant nutrition sales fell 9.2 percent, still hurt by last year’s recall of Fonterra Cooperative Group Ltd. milk powder, which turned out to be a false alert, Danone said today. In January, Danone canceled its supply contract with Fonterra and said it’s seeking compensation. The trading operating margin of the unit shrank by 2.7 percentage points.

Revenue growth and profitability will be stronger in the second half than the first, the company said today. Danone repeated its forecast for full-year like-for-like sales growth of 4.5 percent to 5.5 percent.

In April, Danone forecast this year would be marked by sluggish demand in Europe, higher milk prices and exchange rate volatility in emerging markets. The full-year operating margin may widen or narrow as much as 0.2 percentage point on a like- for-like basis, Danone reiterated today.

Danone’s definition of like-for-like excludes currency changes and adjusts for changes in consolidation scope.

The Wall Street Journal reported July 22 that Danone has asked top managers to look for areas for potential expansion, adding they’ll present ideas at a meeting in September to develop a new strategic plan due in early 2015.

Danone, which competes with Nestle SA in baby food, 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 last year.

The company is in talks to sell its medical-nutrition business to bidders including Nestle, people familiar with the matter said in May. The unit could fetch about 3 billion euros, one of the people said. 

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