Danone CEO Lacks Quick Fixes as Shareholder Pressure Mounts

Danone Chairman and Chief Executive Officer Emmanuel Faber finds himself under growing pressure as investors push for change at the world’s largest yogurt maker. The big problem is there may be no quick solution.

The Evian maker is expected to report its first annual drop in comparable sales in at least three decades on Friday. That contrasts with Nestle SA and Unilever, which had growth despite the pandemic. Danone’s exposure to bottled water means it’s suffering more from Covid-19 restrictions on restaurants, and the company’s baby-food business is facing weakness amid lower birth rates.

A growing chorus of shareholders, including Artisan Partners Asset Management Inc. and Bluebell Capital Partners, have demanded Faber’s removal as CEO in order to pave the way for a greater overhaul. Others, such as Causeway Capital Management, are asking that the company split the roles of chairman and CEO.

Danone CEO Lacks Quick Fixes as Shareholder Pressure Mounts

Danone’s board didn’t discuss separating the positions in October when it discussed organizational changes, Faber said at the time. The only time the roles were separate at the company was from 2014 to 2017, when Faber was CEO under former Chairman Franck Riboud. Faber signaled last month that he didn’t have a dogmatic view on the matter.

“Like an alcoholic, you have to admit you have a problem before you can get better,” said Duncan Fox, an analyst at Bloomberg Intelligence. “Perhaps just as important as splitting the CEO and chairman roles is gaining back investor trust. Admitting their mistakes and making a few tweaks with an external appointment for CEO would go a long way.”

However, a new boss might not be enough. Analysts such as Bruno Monteyne at Sanford C. Bernstein say the issues that are holding back products like yogurt and bottled water are so deep there’s no easy fix. He expects Danone will lower its profit outlook so that it can invest more and regain market share, which will probably weigh on the stock and take time. Danone shares plunged 27% last year, and have gained 3.8% so far this year.

Disgruntled Shareholders

Investors’ discontent has grown over the past decade as Danone struggled to revive its yogurt business sales as consumers embraced new trends such as Greek and non-dairy. The company later still lagged peers even after shelling out more than $10 billion for oat milk maker WhiteWave in 2017. Questions about leadership became louder this year as Danone underperformed rivals.

“No new management team has a magic bullet to change fortunes quickly,” Monteyne wrote in a note last week. “A new CEO will give a burst of hope and optimism, but continuous decline seems the most likely path.”

There’s nothing Danone can do about birth rates, and it’s difficult to bring in innovative new products when managers are concerned about job losses in a restructuring, Monteyne wrote.

Danone has had five organizational changes in the last seven years, which Artisan Partners said is disruptive. Danone has changed how it reports earnings on its categories and geographies several times, and replaced its chief financial officer in October.

Another problem is that two of Danone’s product categories -- yogurt and bottled water -- are divided into two segments, one which is fast-growing and another that’s lagging. That makes it complicated to use M&A as a solution, especially when private label competition is increasing.

Faber has made small steps so far. In October, the company announced a strategic review and plans to cut as many as 2,000 jobs, which is less than 2% of its total staff. He also said Danone will sell smaller businesses such as the Vega protein-powder brand and Argentinian operations.

The most likely scenario is that Danone will try to “muddle through” and only go through with those divestments, said Alain Oberhuber, an analyst at Stifel in Zurich.

Long-Term Plan

One of the shareholders that’s pushing for a new CEO -- Artisan Partners -- is devising a long-term growth plan for the company, which it says doesn’t involve a sale of the company or divesting entire business units. To advise on the strategy, the fund has hired Jan Bennink, a veteran of the consumer-goods industry. The Dutchman has worked at Procter & Gamble Co. and served as CEO of Royal Numico NV, which Danone bought in 2007 to become a world leader in baby-food and medical-nutrition.

Bennink previously helped advise Dan Loeb when the hedge-fund billionaire took a stake in Nestle in 2017 and pushed for changes at the Swiss company.

While Bennink mentioned some small divestments Danone could make in an interview with Le Figaro -- such as exiting milk and butter -- Artisan said it wants to first discuss the plan with Danone, so details are scarce.

Credit Suisse analyst Alan Erskine summed up the analyst consensus in a note last week.

“None of this can be fixed overnight,” he wrote.

©2021 Bloomberg L.P.

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