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Danone Sales Get Boost From Earlier Chinese Baby-Food Rebound

Danone Sales Get Boost From China Baby Food Rebound, Plant-Based

(Bloomberg) -- Danone reported second-quarter revenue growth that topped analysts’ estimates, boosted by a surprise rebound of baby-food sales in the key market of China.

Revenue climbed 2.5% on a like-for-like basis, the Paris-based company said Thursday, beating analysts’ expectations. The shares gained as much as 1.1% in Paris.

The earlier-than-anticipated improvement in Chinese baby-food sales pleased investors, who had been expecting a rebound in the second half. Danone is also rolling out more ultra-premium products and expanding in second- and third-tier cities in the market, which is crucial for future growth as competition in big cities intensifies and the benefits of a baby boom subside.

“Overall the category dynamics have not changed in China, but the execution of our plan was accelerated when it comes to penetrating lower-tier cities,” Chief Financial Officer Cecile Cabanis told reporters in a call.

Elsewhere, the vegan craze is giving Danone’s dairy and plant-based alternatives business a boost. Revenue in Europe grew slightly, helped by Spain and France, which stabilized for the first time in seven years. Dairy hasn’t yet turned positive though, something investors are looking for after years of declines.

“As Danone aims for reliable and consistent results, with no negative surprises, this was another step in the right direction,” Bernstein analyst Andrew Wood wrote in a note.

One weak spot was a volume decline in all three of the company’s major product categories as water turned negative along with dairy and plant-based and baby food, weighed down by poor weather in Europe in May. Price increases and introduction of more premium products contributed to the drop, Cabanis said.

“You need to keep in mind that we’re going for value,” Cabanis said. “We expect volumes to improve in the second half.”

Danone confirmed its full-year guidance for like-for-like sales growth of about 3% and an adjusted operating margin of more than 15%. Danone has said sales will accelerate from the second quarter, a must for the company to reach its 4% to 5% growth goal for next year.

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, John Lauerman

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