Danone Gets First-Half Baby-Food Boost as Dairy Improves

(Bloomberg) -- Danone, the world’s biggest yogurt maker, reported a gain in earnings as Chinese consumers snapped up more infant formula and dairy sales picked up in North America.

Adjusted operating profit rose 7.9 percent on a like-for-like basis to 1.78 billion euros ($2 billion), just short of the analyst consensus, while revenue growth beat estimates. The stock rose as much as 2.1 percent in early trading.

The results are the latest example of Danone outperforming rivals Nestle SA and Reckitt Benckiser Group Plc in baby food, especially in China, where the maker of Aptamil baby formula had 30 percent sales growth in the second quarter thanks to expansion in e-commerce and mom-and-baby store networks. The business faces a slowdown in the rest of the year due to a tough comparison base. That comes as Danone’s dairy business is showing some signs of a turnaround.

A consumer boycott in Morocco, initiated on social media to protest high prices, slashed sales by some 40 percent there in recent months. Excluding the impact of the boycott, second-quarter sales increased 4.3 percent. The protest also led a revenue decline in Danone’s long-suffering yogurt business outside North America. Excluding the boycott, they climbed for the second consecutive quarter. The effect will continue in the second half, Chief Financial Officer Cecile Cabanis told analysts on a call.

In North America, the fresh-food business remains a strong headwind, Cabanis also said. Danone is exploring a sale of organic produce distributor Earthbound Farm LLC, a person familiar with the matter said last month. Cabanis said in April that the first priority is turning the unit around.

In Europe, the yogurt business was still slightly negative, even after the company rolled out a revamp of Activia yogurt about two years ago.

“Overall, it’s not yet stabilized, but it’s making progress,” Chief Financial Officer Cecile Cabanis told reporters on a call. “There’s progress made that leads us to believe we’ll reach stabilization soon.”

Danone’s bottled-water sales growth of 4.5 percent in the first half also surpassed Nestle’s increase of 1 percent for that product category.

Danone reiterated its forecast for earnings per share to rise by a double-digit percentage at constant currencies this year. Baby-food growth will slow in the second half as comparisons become tougher, while the specialized nutrition unit will have mid-single-digit percentage growth this year, Cabanis said.

©2018 Bloomberg L.P.