Danone Gains Versus Nestle in Feeding China's Baby Boom

(Bloomberg) -- Danone is leading the race to feed China’s babies, gaining ground against Nestle SA and Reckitt Benckiser Group Plc and offsetting a slump in its yogurt business.

Sales of infant nutrition climbed almost 10 percent last year, the Paris-based company said Friday. That was fueled by growth in China and the rest of Asia, where Danone has doubled its market share in baby food in the past five years as it increasingly cuts out the middleman by establishing direct sales to consumers.

“Danone continues to navigate the rapid channel shifts to e-commerce and mom-and-baby stores in China more successfully than peers,” wrote Alicia Forry, an analyst at Investec. Sales in that market rose 30 percent in the fourth quarter.

Demand for infant formula has ramped up in Asia’s largest economy, which ended its one-child policy around 2016. Danone’s strong push into e-commerce has helped the company increase its global baby-food market share to 12.3 percent in 2017, gaining for a fifth year, according to Euromonitor. Nestle, the leader with 20.9 percent, said Thursday its infant formula sales growth in China was soft.

Danone shares rose as much as 1.5 percent in early trading.

Peak Baby

Last year’s boom was buoyed by strong birth rates in China, though that’s slowing down, Chief Financial Officer Cecile Cabanis said on a call with reporters. The peak in births was in the second half of 2016, Danone said.

“The market will progressively normalize in 2018, continuing into 2019,” Cabanis said.

Danone forecast that earnings per share will rise at a double-digit pace at constant currencies this year. That follows 14 percent growth in 2017, which was above the company’s target.

Chief Executive Officer Emmanuel Faber has been trying to breathe new life into the yogurt business as sales suffered from tougher competition and marketing missteps in a revamp of the Activia brand. The Paris-based firm acquired soy-milk maker WhiteWave for $10 billion last year to branch out into faster-growing organic food and drinks.

Earlier this week, Danone announced it’s selling about $1.8 billion worth of shares in Japan’s Yakult Honsha Co., six months after activist fund Corvex Management built up a stake in the French company.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier

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