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DANONE - NEUTRAL | EUR76 vs. EUR71 (+6%) Lack of clarity on the growth path Miss due to EDP and Waters EDP: penalized by North America and Russia Waters: negative impact from Mizone and comps in Europe Specialized Nutrition: recovery helped by technical factors Uncertainties about the extent of the recovery in Q4 2020 guidance: hardly achievable – Neutral maintained
Danone
Danone reported Q3 sales figures below consensus expectations and now targets lower full-year sales growth from 3% to between 2.5% and 3%. The operating margin target is unchanged at above 15%. However, we note some positive points anyway, especially in Early Life Nutrition in China.
DANONE - NEUTRAL | EUR71(-10%) Miss on Q3 and cut in FY guidance Organic sales up 3% in Q3 Deceleration at EDP… …and Waters But Specialized Nutrition showing improvement Full year target revised downwards to 2.5%
DANONE - NEUTRAL | EUR71 (-12%) Q3 to show a sequential improvement 3.6% organic sales growth anticipated for Q3 EDP… …and Specialized Nutrition to accelerate Waters to be subdued Neutral maintained
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We reiterate our Buy rating and lift our target price to €90 We upgrade our 2019-21E EPS by 1% post a solid 1H’19 which showcased a faster pace of margin delivery. Danone remains on the path of profitable, sustainable growth.
DANONE - NEUTRAL | EUR71 vs. EUR70 (-8%) EDP remains the main positive EDP: organic sales anticipated to be up 3% in H2 Specialized Nutrition: expect to accelerate to 5% growth in H2 Waters: growth to be Q4 weighed Slight increase to our forecasts
2Q LfL sales grew 2.5% beating consensus by 30bps with solid growth in Specialized Nutrition +3.2% driven by a return to growth with a return to slight growth in China baby while the rest of the world experienced solid growth. Essential Dairy & Plant-based reported 2.2% LfL as volumes (-1.2%) showed sequential improvement.
Quite a good set of H1 results, driven by baby foods in China and the Moroccan recovery. However, our enthusiasm is slightly negatively impacted by volumes declining in Q2 and raw material cost inflation.
Liberum Quarterly Style Review, Auto Trader, Electric Vehicles Update, Roche, Danone, L'Oreal, Segro, WPP, Galliford Try, Market Highlights
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Group 1Q’19 LfL sales growth of 0.8% was broadly in-line with consensus. Essential Dairy & Plant-based (EDP) reported 0.2% LfL sales growth with a 3.8% decline in volumes.
Slow start to the year, mainly due to China’s slowdown and the Moroccan boycott. However, we expect a recovery in both. Coupled with the brighter perspectives, especially for H2, the group should reach its FY19 guidance.
We highlight key news items from the past week and our views below.Unilever acquires oral care brands from P&G.RB faces risk of substantial fines as Indivior charged for fraud. Danone sells Earthbound Farms organic salads business. Proposed merger of US spirits distributors scrapped.
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Mud & Muck Update, Tarsus, Joules, City Pub Group CEO Video, Plus500, Market Highlights
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Shield Therapeutics, Danone, Segro, Market Highlights
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4Q LfL sales grew 2.4% beating consensus by 90bps with strong growth in Waters +5.7% while Essential Dairy & Plant-based International (+2%) and Noram (+2.2%) improved. FY’18 recurring operating margin rose 20bps to 14.45% (+51bps LfL), 20bps below consensus hurt by the impairment of Centrale Danone in 1H and continued input cost pressures (PET) and increasing logistics costs which both rose 20%+ in 2018.
Satisfying FY18 results, with reassuring top line and growing operating margin. We remain cautious regarding further operating profitability improvement despite cost savings, as the company will see higher input/logistics costs in the year to come.
Last week, we reinstated coverage on Henkel with a BUY rating and €98 TP as we support the group’s renewed strategy and see the current share price as an attractive entry point. We also published videos highlighting our best consumer staples ideas for 2019 - ABI, IMB and RB.
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Liberum's most insightful and high-value research and commentary published this past week.
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Consumer Staples Weekly, P2P Global Investments, Retail Outlook Video, Joules CEO Video, Paypoint, Alpha Signals: EU & UK, Daily Mail Group, Marston's Zooplus, Shield Therapeutics, Market Highlights
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On 22nd January, we published our 2019 outlook for the European Consumer Staples sector. On 23rd Jan, we published our note Tobacco - Menthol migration maths highlighting the potential impact of a U.S. menthol cigarettes ban on the tobacco sector.
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In 2019, we expect moderating global GDP growth, led by deceleration in the U.S. and further softening in China. We expect tariffs and trade disputes, political uncertainty and volatility in key markets (U.S., EU, UK) to lead to further systemic shocks which may adversely impact valuations.
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JUUL could be valued at c$30bn post rumoured Altria stake | Danone rumoured interest in Russian baby food brand | Unilever acquires Horlicks for €3.3bn | Kraft Heinz acquires Primal Nutrition for $200m
Danone Unilever
Keurig Dr Pepper to distribute Danone’s evian water in U.S. | Massimo Zanetti acquires Australia’s The Bean Alliance
Although the company showed further improvements in both EDP divisions and good momentum in Waters, the contraction in ELN in China was more severe than expected. We expect changing dynamics in Chinese ELN to result in more conservative estimates in the coming quarters for this segment.
Group 3Q organic sales growth of 1.4% beat consensus by 20bps. Essential Dairy & Plant-based (EDP) NORAM reported 2.7% organic sales growth with a solid 3.4% rise in volumes. Growth was driven by yoghurt, plant proteins and coffee creamers while the fresh dairy market remains soft. EDP International reported flat organic sales driven by Alpro (double digits), the CIS region and LatAm. Waters organic sales rose 6.4% (2.2% volumes) with strength in all regions and categories. Specialized Nutrition organic growth declined 1.5% (-3.9%volumes) as the division faced a challenging comp of 17.8%. China Early Life Nutrition (ELN) contracted 20% following a period of exceptional growth and amid signs of changes in market dynamics. Danone reiterated 2018 guidance.
Immediate cigarette nicotine reduction proven more effective | German retailer Kaufland pulls Unilever products from shelves | Danone announces measures to pacify Moroccon consumers
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Carlsberg to invest €100m in Kronenbourg brewery in France | Spanish discount supermarket DIA joins purchasing alliance | Nestlé finalizes re-organization of its Swiss IT operations | Dairy firm Arla offers entire 2018 net profit to drought-stricken
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Reassuring numbers despite boycott in Morocco, driven by Specialised Nutrition and the pick up in EDP North America. Our Add recommendation is maintained.
2Q LfL sales grew 3.3% beating consensus by 20bps with strong growth in Specialized Nutrition +10.6% and Waters +4.8% while Essential Dairy & Plant-based International and Noram remain subdued. Recurring operating margin rose 20bps to 14.27% (+51bps LfL) in-line with consensus as strong productivity gains, cost savings and WhiteWave synergies more than offset increased commodity costs, packaging costs and higher U.S. logistics costs. Recurring EPS of €1.76 rose 4.6% (+13.4% constant FX, ex Yakult sale). FCF grew 20% to €1.1bn. Danone reiterated 2018 guidance for double-digit recurring EPS growth (constant FX), excluding the Yakult stake sale, with further LfL sales growth and improved recurring operating margin. Danone trades on cal'19E PE of 16.2x and offers a 3.2% dividend yield.
Imperial Brands invests in medical cannabis company | Unilever acquires Italian personal care business Equilibra | Danone is exploring a sale of Earthbound Farm
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Danone’s sales in Morocco suffer due to consumer boycott | American whiskey hit by retaliatory tariffs from EU, Mexico | Heineken USA appoints new CEO
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Strong start to the year with sales growing 4.9% lfl on the back of China which continues to drive Specialised Nutrition and Waters solidly. As positives, we note EDP’s improvement vs. Q4 with EDP International flipping into positive territory despite being negative in Brazil. The company sets the bar high for other Packaged Food players with its Q1 numbers. Investors should feel reassured.
Group 1Q organic sales growth of 4.9% beat consensus by 100bps on a pick-up in volumes to 1.1%. Specialized Nutrition is the standout with 14.5% organic sales growth (+5.6% vols) boosted by >50% LfL growth in China Early Life Nutrition (ELN) due to strong market demand, share gains and positive mix. North and Latin America ELN grew double digits. Essential Dairy & Plant-based (EDP) NORAM organic sales fell 0.2% although volumes grew 1.7%, a marked improvement from a 2.6% decline in 4Q17. Growth was reliant on plant proteins and coffee creamers as dairy remains soft. EDP International organic sales rose 0.8% driven by Alpro (high single digit) and the CIS region. Waters organic sales rose 4.2% (2.4% vols) with strength in all regions and categories. Danone reiterated guidance for double-digit recurring EPS growth at constant FX excluding Yakult transaction (-1.5%).
L’Oréal speculated to acquire South Korean cosmetics Nanda | Tate & Lyle expands food application laboratory in Mexico City | Mylan in advance talks to acquire Merck’s consumer business | Danone North America and Canada receive B Corp certification
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Danone completes sale of Yakult stake; sells Saudi Arabian JV | GSK to sell Horlicks brand including stake in Indian subsidiary | Nestlé’s new structured sugar cuts usage by 30% | HB Fuller reports deceleration in organic sales growth in 1Q’18
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Reckitt and GSK withdraw from Pfizer consumer health auction | ABI finalizes Russia and Ukraine business combination with Efes | Danone issues €300m social bond with a 1.0% coupon | L’Oréal renews license deal with Armani till 2050
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Headwinds are building for consumer staples companies’ margins in 2018. General Mills and Henkel have warned that higher U.S. freight costs will hurt sales and margins in 2018 whilst many others are calling out the risks from still rising freight rates. Packaging costs are also spiking with cardboard and plastic packaging prices rising double-digits in the past couple of quarters. We expect these pressures combined with still sluggish sales growth will hurt margins in 1Q/1H and will lead to a volatile reporting season and scope for negative earnings surprises. We expect more pressure on valuations - the consumer staples sector still trades on a cal'18E PE of 20x vs the 10-yr avg. of 17x.
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Beiersdorf to replace CFO Jesper Andersen by June 2018 | Danone announces sell-down of its 21% stake in Yakult | U.S. may impose tariffs and quotas on aluminium & steel imports
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Solid year-ending, driven by Waters & Specialised Nutrition. Essential Dairy & Plant Based is still in negative territory but improved well in Q4 vs. Q3. We maintain our opinion that EDP tipping over into positive territory would be a clear trigger for the stock.
4Q LfL of 3.7% beat consensus by 40bps with strong growth in Specialized Nutrition +8.4% and Waters +10.3% while Essential Dairy & Plant-based International and Noram continued to improve. Recurring operating margin rose 58bps to 14.36% (+70bps LfL) beating consensus by 10bps as strong productivity gains, cost savings and WhiteWave synergies more than offset increased commodity costs. Recurring EPS of €3.49 rose 12.6% (+14.2% constant FX). FCF grew 18.4% to €2.083bn. The group is lifting the dividend by 11.8% to €1.90 and once again offering a scrip dividend. In 2018, Danone targets double-digit recurring EPS growth (constant FX), excluding the Yakult stake sale, with further LfL sales growth and improved recurring operating margin. Danone trades on cal'18E PE of 18.6x and 2.8% dividend yield.
Unilever acquires Romanian ice-cream producer Betty | Danone’s venture capital unit invests in Harmless Harvest | Nestlé withdraws from Merck & Pfizer consumer units sales | Beer industry writes to Trump on probe on aluminium imports
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On balance, we expect a solid, if unspectacular, set of results. Growth remains constrained - we forecast 3.7% LfL sales growth for Consumer Staples with headwinds from soft consumer demand, geopolitical turmoil and disinflation. Input prices remain benign but intense price competition, retailer pressures and online deflation impede margin growth, putting the onus on cost savings and M&A to drive EPS. Sector valuation remains elevated at 20.8x cal’18E, a 36% premium to STOXX600. We expect valuations to remain capped, particularly if bond yields continue to rise.
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Nestlé sells U.S. confectionery; appoints independent directors | Pernod Ricard acquires remaining stake in Avión Tequila | Hindustan Unilever reports 11% volume growth in Dec quarter
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In 2018, we expect interest rates and inflation will continue to rise on the back of reflationary policies and stronger global GDP growth. Emerging Market growth is picking up bolstering resilient Developed Markets and leading to a more synchronous, broader global economic picture. The risk to global trade remains elevated due to rising protectionism and the potential for trade wars. We expect continued market volatility as nationalistic politics heighten the risk of unintended geopolitical events.
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Nestlé takes lead in Merck KGaA’s consumer health auction | Danone to exit the dairy business in India | Nestlé sells Violet Crumble chocolate brand in Australia | US alcoholic beverage volumes decline in 2017
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Sales grew organically +4.7% (cons. +3%) with volumes up +0.4% (in line with consensus) and pricing +4.3%. Lfl performance by division: Essential Dairy & Plant Based International -2.3% (cons. -1.6%, volumes down -7.4%), Essential Dairy & Plant Based North America -2.2% (cons. -1.3%, volumes down -2.7%), Specialised Nutrition +17.8% (cons. +9%, with volumes +9% and +8.8% in value), and Waters +7.6% (cons. +6.4%, volume up +6.2%). The FY is confirmed and clarified at +12% recurring EPS growth at constant FX.
A debate about why major US food manufacturers’ margins appear consistently higher than those achieved in Europe is, in our view, worth having. In particular, should greater willingness to outsource production processes and focus more on marketing, new product development, finance and strategic M&A be the answer, there could be significant revenue growth opportunities for those who act as food industry solution providers.
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Q2 update: Sales grew organically +0.2% (cons. +0.5%) with volumes down -2.1% (cons. -1.9%) and pricing +2.3% (cons. +2.7%). On reported figures, sales were up +16% (FX: +1.3%, net acquisitions: +14.5%). OG by division: Essential Dairy & Plant Based North America -2.9% (cons. -1.5%, volumes down -0.4%), Essential Dairy & Plant Based International -1.8% (cons. -2%, volumes down -4.8%), Specialised Nutrition +5.5% (cons. +4.6%, pricing driven), Waters +0.3% (cons. +0.7%). OG by geography: Europe & North America -1.5%, ROW +2.3%. Overall, in H1, sales were up +0.4% organically. On reported figures, sales were up +9.7%. The trading operating margin on the reported figures in H1 was up +81bp to 14.1% and 91bp on an underlying basis. For FY17, the group expects volatile and uncertain market conditions with a steep rise in milk prices. The target is to deliver double-digit growth in EPS at constant FX.
At its investor seminar, Danone decided to adjust its 2020 guidance. The company now expects: • 4-5% LFL sales growth (at least 5% previously) : - At least +5% LFL sales growth for Essential Dairy & Plant-based (EDP) NORAM (which includes North American Fresh dairy business and Whitewave’s former North American business) - At least + 5% LFL sales growth for Specialized Nutrition (Early Life Nutrition: 7-10% previously & Medical Nutrition: 6-8% previously) - At least +5% LFL sales growth for Waters (7-10% previously) - 3%-4% LFL sales growth for Essential Dairy & Plant-based (EDP) International (which includes Fresh dairy products in the rest of the world and WhiteWave’s former business in Europe, Latin America and China) •a recurring operating margin of over 16% in 2020 (13.77% in FY16) driven by: - Protein program (cost efficiency) aiming for €1 billion savings by 2020, with at least €300 million net of reinvestment translating into margin expansion by 2020 (15% of cost efficiencies coming from professional services (warehousing), 25% from logistics, 30% from sales & marketing and 30% from manufacturing). - $300 million of synergies from the WhiteWave acquisition (50% coming from SG&A, 30% from procurement and 20% from the supply chain) - more discipline and stricter resource allocation
Danone Q1 update: sales are up +0.7% lfl (in line with consensus) with volume down 2.5% and pricing +3.3%. On reported figures, sales are up +3% (FX: 2.8%, net M&A: -0.5%). Lfl performance by division: Fresh Dairy -2.3% (cons. -1.9%), Waters +1.7% (cons. 1.5%), ELN +4.1% (cons. +3%) and Medical Nutrition +8.8% (cons. 7%). OG by region: Europe -1.9%, CIS & North America -0.1%, ALMA +3.7%. Following the WhiteWave acquisition, the company has upgraded its FY17 guidance to a double-digit recurring EPS growth at constant exchange rates (5% previously). The group will change its reporting structure: - DanoneWave will include Danone Fresh Dairy Products’ and WhiteWave’s current North American businesses; - Fresh Dairy Products will include Danone’s Fresh Dairy Products in Europe, CIS and ALMA as well as WhiteWave’s business in Europe, Latin America and China; - Early Life Nutrition and Medical Nutrition will report as a single category; - Waters will be reported as previously. Performance will be reported based on two different regions: - Europe and North America will report as a single region; - The Rest of the World’s (RoW) perimeter will cover current ALMA and CIS regions.
FY and Q4 update: Q4 sales grew +2.1% (in line with consensus). OG by division: FD +0.7%, Waters +6.3%, Baby Food +0.6%, Medical Nutrition +6.1%. On a FY basis, sales grew organically +2.9% (in line with consensus), and were down 2.1% on reported figures (FX: -5.5%). The operating margin is up 87bp (+70bp lfl). FY OG by division: FD +2%, Waters +2.9%, Baby Food +3.5%, Medical Nutrition +7.4%. OG by region: Europe -1.4%, CIS & North America +4.6%, ALMA +6.7%. The company announced a new cost-savings programme with a target of €1bn by 2020. The efficiency savings will target professional spending, media and logistics. They are part of the implementation of the group’s mid-term guidance of an operating margin progression of 250bp by 2020. For the FY17, Danone sees a volatile and uncertain environment. Costs of raw materials should increase by mid single-digits (milk costs to rise in Europe and North America). The group said that the weak environment in China might also last into FY17 and that it is expecting a slower start to the year. FY17 guidance is to deliver at least +5% EPS growth lfl (excluding the WhiteWave integration). Once this is completed, the group will review its annual targets. The proposed dividend is €1.7 (+6.3%).
Danone has adjusted its FY16 guidance on the back of a weaker than expected Q4 in Spain and Activia’s performance. Consequently, the company expects the FY16 top-line to be slightly below the guidance of 3-5%, whereas the operating margin should be above the 50-60bp guidance (with a possible positive impact of 5-10bp).
Q3 update: sales grew lfl +2.1% (cons. +2.4%) with -0.7% volume growth and +2.8% pricing. On reported figures, sales were down 1.8% (FX: -4.1%, scope of consolidation +0.2%). OG by division: Fresh Dairy +2.2% (cons. +2.5%), Waters -0.1% (cons. +1%), Early Life Nutrition +1.7% (cons. +2.5%), Medical Nutrition +9.7% (cons. +7%). Fresh dairy saw stronger pricing +4.2% on the back of negative volumes in the CIS and LatAm regions. Waters were impacted by the transition phase and floods in China (excluding China, the Waters performance is up mid single-digit). The Early Life Nutrition performance was impacted by tough comparables and the transition from an indirect to a direct sales model in China (excluding indirect sales, ELN was up mid single-digit in China). Medical Nutrition’s excellent performance was driven across all geographies. The company maintains its FY guidance: 3-5% organic top-line growth and 50-60bp lfl improvement in the operating margin, although the top-line is likely to be in the lower range of this.
Danone released its Q2 and H1 update. In Q2, sales grew organically 4.1% (cons. +3.7%) with volumes up +1% and pricing +3.1%. On reported figures sales were down 3% (FX:-7.7% and net acquisitions: +0.6%). OG by division: Fresh Dairy +3% (cons +2.7%), Waters 2.7% (cons. +2.7%), Early Life Nutrition +7.2% (cons. +6.2%) Medical Nutrition 7.1% (cons. +6.5%). OG by geography: Europe -0.2%, CIS&North America +4.8%, ALMA +8%. Overall, in H1 sales grew organically by +3.8%, whereas the operating margin was up +93bp lfl and +125bp on reported figures. Waters was the only division where the margin lfl was down (due to inventory adjustments in China). The company confirmed its FY guidance: 3-5% organic top-line growth and 50-60bp lfl improvement in the operating margin.
Danone has announced the acquisition of WhiteWave Foods (the US-based, natural and health-focused food group) for $12.5bn in cash (including $2.1bn debt). The proposed price per share of $56.25 offers a premium of around 24% to WhiteWave’s average close price over the past month and represents a c. 21.2x EBITDA multiple. The deal is expected to close by the end of the year. It is subject to WhiteWave shareholders and regulatory approval.
Danone released its Q1 trading statement. The OG stood at 3.5% (cons. 3.2%) driven by pricing of +2.7% and volumes of +0.8%. The FX impact was -7.2%. Net acquisitions showed an impact of +0.7%. OG by division: Fresh Dairy +2.3% (cons. 2%), Waters +3.9% (cons. 2.1%), Baby Food +4.8% (cons. +5.5%) and Medical Nutrition +6.6% (cons. 6.7%). OG by region: Europe +0%, CIS & North America +5.1%, ALMA +6.3%. The group maintains its FY guidance: 3-5% OG in sales and a solid improvement in the organic operating margin.
Danone released its Q4 and FY results. In Q4, sales grew organically +3.6% (cons +3.2%) with 1.3% in volume and +2.3% in value. Q4 OG by division: Fresh dairy +2.6% (cons +2%), Waters +1.9% (cons +3.9%), Baby Nutrition +6% (cons +3.4%), Medical Nutrition +6.8% (cons +7.7%). For the FY, the revenue grew organically +4.4% (0.9% in volumes, 3.5% in value) and +6% on reported figures. The operating margin increased +17bp organically (FD +24bp, Waters margin -192bp, Baby Food +142bp, Medical Nutrition +1bp) and +32bp on reported figures. Net income was up +5%. The proposed dividend stood at €1.6 per share. In FY16, Danone expects 3-5% OG in sales (on rising raw material prices, a sluggish economic environment and volatile currencies) and a solid improvement in the organic operating margin.
Danone released its Q3 trading update. Q3 sales were up +4.6% LFL (consensus at 4.3% vs. 4.5% in Q2) with volume up 0.8% (consensus at 1.8%) and pricing up +3.8%. FX stood at -0.2% whereas net acquisitions were -0.2%. On reported figures, Q3 sales grew by +4.2% to €5.6bn.
Q2 sales grew by 4.5% LFL (consensus at 4.3%) with volumes at 1.5% and pricing at 3%. The performance was driven by a strong Waters (10.2%, equally price- and volume-driven), Infant Nutrition (11.1%, with 7.3% volume growth) and Medical Nutrition (7.1% with 5% volume growth). Fresh dairy sales decreased by 1.1% LFL (-3.1% in volume and 2% in pricing).
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