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BNPP Exane View: While not that surprising, we view the departure of Shane Grant as being a negative for Danone. What happened? Danone yesterday (post market) announced that Shane Grant, Deputy CEO, CEO Americas and EVP Dairy, Plant-Based and Global Sales, has decided to pursue a new opportunity outside the group (his move will be effective on 13th June 2025). Given Shane''s instrumental role in step-changing growth in Danone''s North American business over the past few years, we always rather felt that it was rather a matter of when as opposed to if Shane would leave Danone (frankly speaking, we are surprised that he stayed as long as he did). We have long been of the view that Shane had the potential to undertake a much bigger role outside Danone (it remains to be seen where he is headed). Danone has announced that for now, Veronique Penchienati-Bosetta, Group Deputy CEO, will take over Shane''s scope, in addition to her current responsibilities.
Danone Danone SA
Summary of Q125 sales While Q125 LFL sales growth at +4.3% was c.50bp ahead of co. consensus, vol/mix at +1.9% was 70bp below co. consensus. The pricing beat was principally driven by Latin America (with +11.1% pricing vs. Bbg consensus at +2.8%). As to the vol/mix miss, we note that both North America (+0.9% vs. Bbg consensus at +2.6%) and ROW (-1.0% vs. Bbg consensus at +2.2%) were light. News We highlight that Danone expects an improved performance from Creamers from Q2. Earnings We revise our FY25e/FY26e/FY27e EPS by +1%. Investment thesis While we can see the attraction in the protein narrative, post the material re-rating that Danone has experienced over recent years, we struggle to argue for a further re-rating at this juncture. Rating / target price We maintain our Neutral rating. Our TP moves from EUR75 to EUR79 (principally reflecting an increase in target multiple). 15 questions for management Given the absence of a leap day headwind, assumed more normalised weather in Mexico/Indonesia and more Creamers availability, why should LFL sales growth not meaningfully accelerate in Q2?
BNPP Exane View A confident call from Danone. Not much more to be said really. Notes below. Highlights: QandA . Creamers: Category consistently growing MSD. Have been gaining share over the past 2 years. In Q1 had out-of-stocks at shelf, that is now resolved and expect an improved performance. Have a good innovation pipeline and will be getting back with commercial activities. StoK performing fantastically, starting to be sizeable; . Europe EDP: N. America skewed towards Greek yoghurt which grows very fast. In Europe, EDP is improving Q by Q. Have exited some parts of the portfolio and relaunched others (kefir, skyr, high protein). Believe that both EDP Europe and N. America can deliver a good contribution to the overall company; . Plant based: Alpro from strength to strength in Europe. Seeing green shoots in N. America; . Q1 vol/mix and pricing: leap day; N. America had earlier pricing (vs. late pricing last year) and Waters started slow with bad weather in Mexico and Indonesia (hence Danone slowed its promotional activities). Want to drive vol/mix, pricing should not be the main driver of growth going forward; . China SN: Happy with both Chinese and international labels. Gaining significant share. Essensis now largely available across the country. Pricing normalising as expected. Category doing better, especially for stage 1 products. Re competitor announcements: all participants are trying to stimulate growth. Nuturis will come at some point to the mainland; . Europe EDP: Are happy with the progress. Now 6 quarters of positive vol/mix. The weight of high protein vs. N. America is relatively low (but will rebalance over time). Pricing will not be a big growth driver in Europe (Q1 was in the middle of negotiations, some are closed but an important part is still open); . Q2 LFL: Every quarter is different, there is always a sick child, confident to continue to deliver consistently; . Pricing LATAM: The size of Waters is heavy and it was a slow...
BNPP Exane View While there is a +50bp headline LFL beat (vs. co. consensus), vol/mix is a light (-70bps below co. consensus) and the pricing beat is primarily driven by Latin America. On this basis we expect a broadly neutral (to sector) share price reaction. Headline figures . LFL: +4.3% (co cons: +3.8%; BBG cons: +3.9%) . Vol/mix: +1.9% (co cons: +2.6%; BBG cons: +2.8%) . Price: +2.4% (co cons: +1.2%; BBG cons: +1.1%) Top-line drivers Scanning the top-line drivers by segment / geography, the principal driver of the beat is Latin American pricing (+11.1% vs. Bbg cons at +2.8%). As to the vol/mix miss, we note that both North America (+0.9% vs. Bbg cons at +2.6%) and ROW (-1.0% vs. Bbg cons. at +2.2%) are light. Bottom-line drivers N/A - only a sales update Other Nothing of note. Guidance (unchanged) . LFL: +3-5% (Bbg cons: +4.1% LFL) . EBIT: recurring EBIT to grow faster than sales (Bbg cons: +30bps YOY) Likely revisions of consensus We estimate that consensus likely has around a -4% earnings downgrade weighing on FY26 from cumulative FX. Sector read across We will watch Latin America pricing from its notable Swiss peer tomorrow. Conference call details Today at 08:15 CET. Web: Click here.
Exploring another MDL In Apr-24 an MDL was filed in California alleging that a number of defendants (including Danone and Nestle) knowingly sold baby food products contaminated with toxic heavy metals, failed to warn that this was the case, which resulted in brain injury and neurodevelopmental harm. The MDL had 14 defendants in the original master complaint form and currently has 143 member cases. Background Heavy metals occur naturally in the environment and hence are present in many foodstuffs, they cannot be completely avoided. Over the last decade there have been many instances in the US of ''news'' on baby food containing heavy metals. Notably, in 2021 a Congressional Subcommittee published on the topic. As part of its ''Closer to Zero'' programme, the FDA has been investigating the scientific basis for action levels (e.g. it recently published action levels for lead). Market structure As per NielsenIQ CY24 retail sales data, Nestle had a c47% share of the US baby food market and Danone had a c10% share. What disclosures have been made? Danone has disclosed that it denies all of the allegations made in a number of related 2021 class action and parallel lawsuits and no provision has been recognised as it is not currently in a position to make a reliable assessment. We have not found any specific reference to the issue in Nestle''s financial statements. Implications: unlikely to be a big issue, but not something that should be ignored While we suspect this is unlikely to be a big financial issue, as we have come to learn, the US legal process for injury claims is a law unto itself (pun intended), hence it should not be ignored.
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We have adjusted our estimates to make some modest operational tweaks and update for latest FX. We do not consider the changes to be material; our rating is unchanged.
What happened? We recently caught up with Danone post publication of its aide-memoire and ahead of its closed period (Danone reports Q125 sales on 23rd April) to get clarification and an update on what it has been saying to investors over recent weeks. Overall, we felt that the tone was slightly cautious, primarily as a consequence of the recent slowdown that we have witnessed in US retail sales data driven by coffee creamers (see Nielsen, Mar''25). Bloomberg consensus currently looks for +4.3% LFL sales growth for Q125 (we are consensual) and we would not be surprised to see consensus drift down into high-3% territory. Points of note: . North America: Danone acknowledged that it has also seen the sequential slowdown in its US retail sales data, primarily driven by coffee creamers. While it stressed that this data does not cover all channels, we understand that Danone is reviewing its execution and has innovation to come later in the year. . Price/mix: We would not be too surprised to see some rebalancing of consensus Q125 LFL sales growth between price and volume/mix to reflect an increase in the weighting of the former and reduction in the weighting of the latter. Bloomberg consensus currently looks for +1.1% price and +3.2% volume/mix. . Trading day: Danone reminded us that there is one less trading day in the quarter. . Destocking: Most of Danone''s North American business is fresh and hence relatively less prone to retailer destocking (which has been cited by many of its more ambient-focused peers as being a recent phenomenon in the US market). . Guidance: There is no change to FY guidance.
Summary of Q4/FY24 results A strong end to the year for Danone with Q4 LFL sales growth at +4.7% coming materially ahead of co. consensus (4.2%) driven by vol/mix (+4.2% vs. co. cons at +3.4%). By geography, NAM was a particular area of strength with +7.7% LFL sales growth. Turning to the FY profits picture, EBIT of EUR3.6bn was 0.8% ahead of co. cons, EBIT margins at 13.0% were in-line and EPS at EUR3.63 was 2.0% ahead of co. cons. DPS at EUR2.15 was 1.1% ahead of VA cons. News We highlight that Danone commented that while it will be on the front foot with respect to MandA, it remains committed to structurally DD ROIC. Earnings We leave our FY25e/FY26e/FY27e EPS broadly unchanged. Investment Thesis While we can see the attraction, post the material re-rating that Danone has experienced over recent years, we struggle to argue for a further material re-rating at this juncture. Rating / target price We maintain our Neutral rating. Our target price moves from EUR70.50 to EUR75 (driven by an increase in multiple given recent peer/sector re-rating). 15 questions for management Litigation aside, why would Reckitt''s Nutrition business not be a sensible acquisition for you?
BNPP Exane View The shares are now up only modestly, which we attribute to travel and arrive (as we said earlier, a positive surprise on results was widely anticipated). This said, we view the share price reaction as being a tad uncharitable, to our mind this was a good set of results, with a conference call to match. Highlight: QandA . Inflation / pricing: 24 saw lower commodities especially in H1, for 25 see a normal level of inflation (driven mainly by milk and some packaging). Will drive productivity to the max, operational leverage (volumes) and pricing (targeted); . Reinvestments: Have been on: i) share of voice / brands (getting closer to fair share, journey is not over); ii) capabilities (e.g. RandD); iii) data/IT (journey not over); . SN pricing in Q4: There was a temporary impact in China driven by Essensis distribution build, it will normalise very fast in FY25; . FCF: EUR3bn driven by underlying earnings as well as further WCAP (now -8.5% of sales). Saying not structurally EUR3bn as want to improve absolute earnings step-by-step. Are structurally delivering FCF that is above EUR2.5bn; . GLP-1: Significant in the US, yoghurt with protein becomes the answer. See no slowing of the GLP-1 trend in the US. Seeing a push for healthier food with the new US administration. Europe has always been slower to adopt new trends, the trend of obesity is also important there. Think adoption is slower as the legalities of reimbursement and registering and longer than in the US, but see the same trend coming at some point in Europe. . NAM EDP: In our digital campaigns we leverage diabetes and see an uplift. The overall EDP portfolio is running well. Making good progress on Too Good, everything to do with coffee is doing well. Are making progress step-by-step on Silk; . China IMF: Don''t know whether birth rates have stabilised. Essensis was launched in H224, the first results are really encouraging, the product cuts through the shelf with impactful...
BNPP Exane View While many market participants were likely anticipating a modest positive surprise from Danone, it has not failed to deliver. Achievement of its long-term EUR3bn FCF target in FY24 is particularly noteworthy. We believe a +2-3% share price reaction is warranted (we are mindful of its notable peer''s recent re-rating). Headline figures . Q4 LFL: +4.7% (co. cons: 4.2%, VA cons: 4.3%) . Q4 Price: +0.6% (co. cons: 0.8%, VA cons: 0.8%) . Q4 Vol: +4.2% (co. cons: 3.4%, VA cons: 3.5%) . Q4 LFL EDP: +4.7% (VA cons: 3.7%) . Q4 LFL Waters: +5.3% (VA cons: 4.5%) . Q4 LFL SN: +4.6% (VA cons: 4.9%) . FY24 EBIT: EUR3,558m (+0.8% vs. co. cons, +0.7% vs. VA cons) . FY24 EBIT margin: 13.0% (co. cons: 13.0%, VA cons: 13.0%) . FY24 EPS: EUR3.63 (+2.0% vs. co. cons, +3.1% vs. VA cons) . FY24 DPS: EUR2.15 (+1.1% vs. VA cons) Q4 top-line drivers Taking a geographical perspective, North America is the standout with +7.7% LFL sales growth (VA cons: +4.5%). By segment we note that both EDP (+4.7% LFL vs. VA cons. at +3.7%) and Waters (+5.3% vs. VA cons. at +4.5%) are ahead. FY bottom-line drivers The +39bp margin improvement (H1: +45bp) included +242bp margin from operations (H1: +275bp) and -173bp of reinvestment in product, capabilities and AandP (H1: -169bp). Other . FCF: EUR3,003m (+EUR370m YOY) . ND (incl. puts): EUR8.6bn . SBB: Of up to 2.7m shares in FY25 to offset option dilution. Outlook / guidance . LFL sales growth: 3-5% (VA cons: +3.8%) . Adj. EBIT: to grow faster than sales (VA cons. margin: +30bp YOY) Likely revisions of consensus We would expect to see modest upward pressure to consensus. Sector read across Limited. Conference call details Call at 08:00 CET. Webcast: Click here. QandA dial-in: Click here.
RFK Jr appointed Health Secretary US President-Elect, Donald Trump, has announced that Robert F Kennedy Jr (RFK), will be appointed Secretary of Health. One area in which RFK appears to hold strong views is food where he has spoken of his desire for Americans to eat healthier. For example, he has spoken of: banning artificial food colouring and certain additives; ending FDA scrutiny of things like supplements; changing rules on food stamps (e.g. not being able to buy ultra processed foods with SNAP benefits) and banning ultra processed foods in school lunches. BNPP Exane View: While rhetoric is one thing and reality is quite another, the appointment adds weight (no pun intended) to the headwinds facing segments of the US packaged food industry. As to relevant exposures, in the figure below we outline both relevant US exposures (est. % of FY23 revenues) and those that we estimate are relevant: / In conclusion, across our coverage, Lindt appears to have the most exposure to this thematic and JDE Peet''s the least.
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Summary of Q324 sales LFL sales growth of +4.2% was c.30bp ahead of co. cons, with volume/mix at +3.6% coming 70bp ahead and pricing at +0.7% modestly (-0.2%) below. Taking a divisional perspective, we note that while Waters LFL was 90bp below VA consensus (adverse weather conditions in Europe and Mexico), EDP was 80bp above and SN was 50bp above. As a consequence, one could argue that the mix of the delivery reflected a more positive development than suggested by the modest LFL beat at the group level. News We highlight that Danone is seeing the first signs of recovery in the Chinese IMF market. Earnings We revise our FY24e/FY25e/FY26e EPS by +1%. Investment thesis While Danone offers temptation as a turnaround play, post a material re-rating in FY23/FY24 we believe a further re-rating may be harder to come by. To chase the stock from here we would need to have confidence that Danone can sustain over 4% LFL sales growth over the mid-term, this is confidence that we do not currently have. Rating and target price We maintain our Neutral rating. Our target price moves from EUR66 to EUR67. 15 questions for management Notwithstanding the positive impact of protein and Alpro performing well, your European EDP performance (+0.9% LFL in Q3) remains distinctly lacklustre, what is dragging the performance of this segment and are there any reasons to believe that it should improve?
We have adjusted our estimates to reflect updated FX translation and some very modest organic growth changes. We do not consider the changes to be material; our rating is unchanged.
We have adjusted our estimates to reflect incorporation of a new segmental sales / EBIT model. We revise our FY24e/FY25e/FY26e EPS by c.(2)-(3)%, the variance principally stemming from a lower net FX / hyperinflation estimate than we had previously assumed. Reflecting our EPS revisions, our target price moves from EUR67 to EUR66. We maintain our Neutral rating.
Summary of Q2/H124 results Q2 LFL sales growth was 30bp ahead of co. cons. driven by +2.9% volume growth (co. cons: +2.1%) and +1.0% price growth (co. cons: +1.5%). We noted that relative to (VA) consensus, volumes were ahead of expectations in all divisions and pricing was below in all divisions. Turning towards the bottom-line, EBIT margins expanded by +45bp (co. cons: +40bp) and this helped to drive a c.1.2% EBIT beat and +4.7% EPS beat (both vs. co. cons.). News We highlight that while Waters was pressured in Q2 by European weather, Q3 is off to a good start. Earnings We revise our FY24/FY25/FY26e EPS by +2-3%. Investment thesis While Danone offers temptation as a turnaround play, post a material re-rating in FY23 we believe a further re-rating will be harder to come by Rating / target price We maintain our Neutral rating. TP from EUR64 to EUR67 (EPS revisions and 6-month roll-forward). 15 questions for management Assuming that NEC liabilities would be left with Reckitt, why would acquisition of its Nutrition business not make sense for you?
We have adjusted our estimates to reflect updated FX translation and some modest operational changes. We do not consider the changes to be material; our rating is unchanged.
This report does not contain 100 questions Parts of the team have developed a tendency to publish 100 questions ahead of CMDs (see Beiersdorf, DSM-Firmenich and Novonesis). Given that the Danone analyst is a rather simpler minded individual, in this report we focus not upon 100 questions, but a few key areas of interest. Question area 1: The implications of demographics in SN We estimate Danone generates c.25% of group sales and c.41% of EBIT from SN products targeted at children. Why does the decline in both developed and developing market birth rates not reduce the structural attractiveness of these products? How much of SN is adult medical nutrition and what opportunity does channel development offer to accelerate growth in adult medical? Question area 2: Chinese infant formula Can Danone say anything to (partially) pacify our longstanding concerns on this business? Question area 3: Gut microbiome In theory Danone should be well positioned in the fast-advancing science of the gut microbiome. We would like to leave with confidence that this theory could be turned into some mid-term reality. Question area 4: EDP reshaping Notwithstanding material portfolio reshaping, both our and consensus EDP growth projections remain pedestrian. Are we being too conservative, probably not, but challenges to the cautious orthodoxy would be welcome. Conclusion: Given seemingly low expectations we are positively minded into the CMD While we expect no big fireworks nor aggressive mid-term targets, given seemingly low investor expectations, we are more positively than negatively minded into the CMD.
Food Manufacturing: GLP-1''s and UPF''s should not be your only worries While usage of GLP-1''s and increasing publicity surrounding ultra processed foods (UPF''s) are sources of concern for investors in the food industry, we would suggest that another bigger issue may be lurking; population ageing looks set to pose a significant threat for many names. Demographic changes will post a material challenge Not only is population growth slowing (in nearly all geographies) and birth rates plummeting, but many populations are starting to age at a dramatic rate. The UN predicts that between now and 2050, 1/2 of the growth in the world''s population will be in the 64 years old cohort. Simply put, older people eat less Simply put, older people typically eat less due to a combination of lower activity levels, physiological and context changes. Leveraging relevant academic research and population forecasts, we have built a proprietary model that enables us to forecast how total calorie intake will evolve by country/region. Should you be worried about ageing now? Yes There is always a temptation to ignore trends that play out over the long-term. We would encourage you not to ignore the impact of ageing for we are mindful that: i) staples are long duration cashflows and ii) history tells us that sticking with long-term trends tends to be a winning strategy in staples. We explore the implications across our EU/US Food Mfg. and EU Food Retail universe Within our EU Food Manufacturing coverage, Danone and Lindt look to be most challenged by population ageing, and JDE Peet''s and Mowi look best positioned. Within US Food Manufacturing, Oatly looks most challenged (high China exposure) with Mondelez best positioned. As to the EU Food Retailers, while all will likely be negatively impacted, Ahold Delhaize is likely a relative winner (US exposure).
BN BN NESN LISP SBRY TSCO CA CA AD COLR COLR KESKOB JMT JMT K K HSY HSY GIS GIS CPB CPB MDLZ MDLZ MOWI MOWI SJM SJM CAG CAG AXFO AXFO MKC MKC LOTB LOTB KHC KHC LW LW B4B JDEP OTLY KLG
Summary of Q124 sales A strong start to the year for Danone with Q1 LFL sales growth at +4.1% coming +0.7% ahead of co. consensus. As to the nature of the beat, it was principally driven by Waters (+8.1% vs. VA consensus at +5.5%). LFL sales growth in EDP and SN was broadly in-line with (VA) consensus. News We highlighted that Danone suffered some temporary supply disruptions in EDP Europe in March/April related to retailer price negotiations. Earnings We revise our FY24e/FY25e/FY26e EPS by c.-3% (primarily due to FX and more specifically, the estimated impact of Argentina). Investment thesis While Danone offers temptation as a turnaround play, post a material re-rating in FY23 we believe a further re-rating will be harder to come by. Rating and target price We maintain our Neutral rating. Our target price moves from EUR66 to EUR64. 15 questions for management Should we assume that the exit from underperformers is now largely complete and future MandA moves are more likely to be acquisitions as opposed to disposals?
Summary of Q4/FY23 results Q4 LFL sales growth at +5.1% was in-line with co. cons. expectations (+5.0%) as was vol/mix growth at +0.8% (co. cons: +0.7%). FY EBIT margins at +40bp YOY were c.10bp ahead of co. cons. While absolute EBIT at EUR3.5bn was only +0.5% ahead of co. cons, this was amplified by lower-than-expected finance costs and higher-than-expected affiliates to drive a c.+2.6% EPS beat. DPS at EUR2.10 (in cash) was c.1.2% ahead of VA cons. News We highlight that Danone commented that it is seeing disinflation not deflation and that it expects that pricing will make a positive contribution to LFL sales growth in FY24. Earnings We revise our FY24e/FY25e/FY26e EPS by c.+2% (primarily due to affiliates). Investment Thesis While Danone offers temptation as a turnaround play, post a material re-rating in FY23 we believe a further re-rating will be harder to come by. Rating / target price We maintain our Neutral rating. Our target price moves from EUR64 to EUR66. 15 questions for management With birth rates declining across the globe, what is your current view on inorganic expansion opportunities in infant nutrition?
Summary of Q323 sales A strong quarter from Danone with LFL sales growth of +6.2% coming materially ahead of co. consensus expectations (+4.7%). The beat was principally driven by pricing (6.6% vs. co. cons. at +5.4%) which came ahead of (VA) consensus expectations in all divisions and nearly all regions (China, Oceania and North Asia being the only exception). News We highlight that Danone expects to see cost inflation in FY24 and expects that its pricing will be positive. Earnings We make only relatively modest revisions to our FY23e/FY24e/FY25e EPS. Investment thesis While Danone is relatively inexpensive, we have concerns on the sustainability of Chinese infant formula profits and we believe that LFL sales growth in FY24 will likely underwhelm. Rating and target price We maintain our Underperform rating and EUR54 target price. 15 questions for management EDP Europe will clearly benefit from a very depressed comparative in Q4, on an absolute sequential basis are you seeing a material improvement in volumes in this business?
Danone published a solid set of Q3 results, above the market expectations and driven by pricing. Although the volume contribution was still negative, an improvement has been seen since the last quarter and Danone is expecting a positive volume-mix by the end of the year. As we had expected, the FY 2023 guidance was raised.
Obesity is a growing worldwide problem Notwithstanding government efforts, the incidence and associated costs of obesity only continue to increase. A staggering c.73% of the US population is now overweight/obese (c.43% being obese). Does the pharma industry have the answer to obesity? There is much excitement in the pharma world regarding the potential for weight loss drugs such as Ozempic, Wegovy and Mounjaro (and similar/future treatments). We explore within. What if weight loss drugs become common place? What would be the impact for the food industry if usage of appetite suppressants were to become common place? While this question may seem fanciful to most pharma analysts, who are rightly concerned with near-term considerations such as capacity, reimbursement, duration etc.., from a long-term food industry perspective we believe it is not so crazy. Within we outline our thoughts. How to think about the impact Taking the US as an example, we have built a model which enables us to estimate the potential impact upon US total lifetime calorie consumption if varying levels of obese and severely obese adults utilise such weight loss treatments and subsequently maintain a new normal goal weight. What does our model predict? If 50% of obese and severely obese US adults were to participate in treatment and reduce their weight to the upper end of normal, we estimate that the initial impact on total US adult calorie consumption would be -3.0% (material in the context of a low growth food industry). What are the implications for EU/US Food Manufacturers and Ingredients? Within we scope out estimated exposures, unsurprisingly the top of the list is dominated by the US food manufacturers.
BN BN NESN LISP TATE ULVR KYGA K K HSY HSY GIS GIS CPB CPB GIVN NZYMB NSISB MDLZ MDLZ CRDA MOWI MOWI SJM SJM CAG CAG IFF IFF SXT SXT SY1 MKC MKC CHR CHR LOTB LOTB GLB AAK AAK KHC KHC JDEP OTLY DSFIR
Summary of Q2/H123 results H1/Q2 results were modestly above consensus from an operational perspective. Q2 LFL sales growth at +6.4% was c.80bp above co. cons. driven by pricing (+60bp vs. co. cons). The standout performance was in Waters with +9.6% LFL sales growth (VA cons: +6.9%). EBIT margins expanded by +14bp YOY (modestly above co. cons.) which helped to deliver a 1.7% EBIT beat. While underlying FD EPS at EUR1.76 was materially (+6.0%) ahead of co. cons, this was partly driven by the phasing of financing costs. News We highlight that Danone made numerous comments suggesting that it is happy with its performance and execution of the turnaround strategy. Earnings We revise our FY23e/FY24e/FY25e EPS by c.(1)%. Investment thesis While Danone is relatively inexpensive, we have concerns on the sustainability of Chinese infant formula profits which we estimate account for c.1/4th of group profits. Rating / target price We maintain our Underperform rating. Our TP remains unchanged at EUR53. 15 questions for management Why is it not just a matter of time until you need to start reducing prices in EDP?
The H1 results were solid, exceeding consensus expectations, but they were not so exceptionally outstanding to surprise the market positively (as Unilever did yesterday). The results were mainly driven by price/mix dynamics. However, the progress made towards the “Renew Danone” strategy and another successful quarter of delivery instill confidence and trust in the company.
Summary of Q123 sales A strong start to the year for Danone with +10.5% LFL sales growth coming materially ahead of co. consensus expectations (+7.3% LFL). Furthermore, the beat was widespread with both pricing and vol/mix coming ahead of VA consensus expectations in all three divisions. From a geographical perspective, China, Oceania and North Asia was the standout with +16.0% LFL growth (11.3% ahead of VA cons.). Finally, it is worth noting that Danone made reference to the net benefit of some unquantified one-off impacts (Chinese infant restock, Ramadan phasing, European waters phasing). News Danone commented that if you look at the average performance of SN in Q123 and Q422 (+9.6% LFL) then it gives a good idea of underlying trends to expect in SN going forward; Earnings We revise our FY23e/FY24e/FY25e EPS by +0%-1%. Investment thesis While Danone is relatively inexpensive, we have concerns on the sustainability of Chinese infant formula profits which we estimate account for c.1/4th of group profits. Rating and target price We maintain our Underperform rating. Out target price moves from EUR47.50 to EUR54. The increment primarily driven by an increase in target multiple (recent sector/market re-rating). 15 questions for management Given +10.5% LFL sales growth in Q1, why only guide to +4-6% LFL sales growth for the FY?
A positive volume/mix (despite accelerated pricing) and an upgrade to the FY23 sales outlook confirmed that consumer demand has so far remained resilient. Given the significant discount to Nestle (16.3x FY23 P/E vs. 24.0x) and the positive momentum, the stock is becoming increasingly attractive.
In his 2002 hit ''Lose Yourself'', singer/songwriter Marshall Mathers III rapped ''Snap back to reality, ope there goes gravity''. In our view, these words could well be an apt description of U.S. packaged food volumes in 2023. That is, with emergency allotments of SNAP (Supplemental Nutrition Assistance Program) having ended in February in the remaining 32 states where it persisted, our analysis suggests gravity could help bring packaged food volumes back to earth, so to speak. SNAP Back to Reality... Recall that, in March 2020, the USDA approved states to provide SNAP households with extra pandemic-related SNAP benefits known as emergency allotments (EA). While 18 states have since ended EA, Congress passed a law ending EA nationwide after the February 2023 issuance, which means that the remaining 32 states have now issued their final EA. As such, SNAP households now must face a new reality in which they will, on average, have ~$170 less a month in benefits. ...Ope There Goes Gravity Our analysis suggests the impact of EA ending could be a significant headwind to U.S. packaged food sales growth. Specifically, we compared sales growth in states where EA already ended vs. those where EA persisted through 2022 -- an analysis we believe isolates out the impact of EA. This analysis suggests EA ending is a -MSD YOY headwind, which, combined with ~3/4th of sales falling in states where EA persisted, implies a ~-3.5% YOY impact to total sales over the next year. Company Exposure Of course, some companies will be impacted more than others. Directionally, we think there are two key variables that matter most: 1) the % of total company sales from U.S. retail and 2) the impact of EA rolling off on U.S retail sales (which we estimate by replicating the above analysis at the company level). All in, our analysis would suggest that Conagra and Smucker have the most risk while Lindt, Unilever, Mondelez, Danone, Kellogg, General Mills, and Reckitt have the...
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Summary of Q4/FY22 results Q4 LFL sales growth at +7.0% was 80bp ahead of co. consensus, primarily driven by volume. Turning towards the FY22 profits delivery, the EBIT margin at 12.2% (-154bp YOY) was 10bp ahead of co. consensus and this led to EBIT at EUR3,377m coming 0.8% ahead of co. consensus. In part as a consequence of better-than-expected associate income, FD EPS at EUR3.43 was 2.4% ahead of co. consensus. DPS at EUR2.0 was modestly below VA consensus (EUR2.01). News We highlight that around 50% of the Q4 volume decline in EDP Europe was out of choice (linked to Danone''s portfolio choices and temporary delivery suspensions). Earnings We leave our FY23e/FY24e/FY25e EPS broadly unchanged. Investment Thesis While Danone is relatively inexpensive, we have concerns on the sustainability of Chinese infant formula profits which we estimate account for c.1/4th of group profits. Rating / target price We maintain our Underperform rating and EUR47.50 target price. 15 questions for management What proportion of your FY22 sales and EBIT were generated in Russia?
A satisfactory year. Q4 volumes were inevitably light, but nothing worrying in the current environment. The FY23 guidance is in line with the consensus. Nothing very glorious, but enough to be happy about on a Danone scale.
Danone is relatively inexpensive...if one believes Chinese infant milk profits are sustainable On most common valuation metrics, Danone''s shares are relatively inexpensive. However, this is only meaningful if one believes that the estimated c.24% (FY22e) of EBIT that Danone generates in Chinese infant milk formula (IMF) is sustainable. In this report we explain why this is unlikely. Chinese birth trends are difficult, but do you appreciate just how challenged they are? It is no great secret that Chinese demographics are difficult, but do you really appreciate just how challenged they are? Less women of child-bearing age, less marriages, more divorces; the omens are sobering. The authorities are starting to become more active, where will it lead? With births having continued to underwhelm, the authorities are becoming more active, where will it lead? We are mindful that comparable IMF products cost c.2.5x in China what they do in Europe. Implicit price controls or centralised procurement are both possibilities. We are mindful of the recent experience of the private tutoring companies (profits regulated away). Note: We believe that Danone makes higher margins selling IMF in China than Remy Cointreau does selling cognac. The valuation of Chinese IMF plays implicitly suggests that trouble may lie ahead Quoted Chinese IMF plays have been extremely weak (most trading c.(80)% below their FY20/FY21 share price peaks). The only way one can rationalise valuations is if there is material downside to consensus expectations. Market leader, Feihe, trades on c.3.7x CY23e cons. EV/EBIT. Conclusion: Danone is not as cheap as it appears valuing Chinese IMF as per peers If one values Danone''s Chinese IMF business as per its local peers, this adds c.3x to P/E and c.2.5x EV/EBIT on the residual business. In other words, Danone is not as cheap as its headline valuation suggests. We maintain our Underperform rating.
A copy/paste of what we had previously seen from other consumer staples companies: a beat on price, lower-than-expected volume elasticity and a revenue guidance upgrade maintaining the margin target unchanged.
Summary of Q322 sales Q3 LFL sales growth at +9.5% was materially above co. consensus expectations (+6.9%). The development reflected +10.9% price (co. cons: +7.9%) and -1.4% vol/mix (co cons: -0.9%). Excluding Russia, LFL sales growth was +10.0%, price was +10.2% and vol/mix was -0.2%. While vol/mix was materially positive in both SN and Waters, it declined by -6.0% in EDP due to a number of factors (we estimate that Russia impacted by around -2.3%). News We highlight that Danone has been actively pruning some underperforming brands / SKUs and this impacted the volume/mix performance in EDP Europe. Earnings We leave our FY22e/FY23e/FY24e EPS broadly unchanged. Investment thesis While Danone is relatively inexpensive, we have structural concerns on parts of the portfolio, most notably Chinese infant formula which we estimate accounts for close to 1/4 of EBIT. Rating / target price We maintain our Underperform rating. Our TP moves from EUR52 to EUR50. 15 questions for management Many of your Chinese infant formula peers (Ausnutria, Feihe, HandH) have seen their share prices collapse this year and now trade on absurdly low valuations if consensus is to be believed, what is your understanding as to why this has been the case?
The trend for consumer companies finally looks good so far. Danone beat expectations from the top to the bottom-line with reassuring volume metrics. FY sales guidance upgraded, and EBIT guidance reiterated.
Danone shares are flying (+8% at mid day), well beyond what might have been expected following the sound/reassuring Q1 numbers. The main reason is Lactalis.
The Q1 sales beat, with growth across all segments and geographies, secures the FY22 guidance for now. Normalization of the figures expected looking forward.
Reinvestment has been the watchword of the CMD. While it could be the key for fundamental changes, this adds more pressure on margins in the current inflationary context. FY22 will therefore be challenging, but, looking forward, Antoine de Saint Affrique was able to convince us in part that things could move in the right direction. The mid-term guidance is not fantastic either, but given Danone’s historical tendency to lower its targets as time goes on, this caution is probably better.
The reiteration of the FY21 margin guidance is reassuring and proves that Danone is dealing with cost inflation (roughly) as well as its peers. Apart from this, we don’t see other major catalysts before Saint-Affrique’s announcements expected during the CMD in March 2022.
A mix of good operational and governance news, which is very welcome after Danone’s underperformance. However, we remain cautious on margin development given the weaknesses announced by peers.
No major surprise in the Q1 results, nor stunning news about a new CEO/strategy. The group, currently on a “break”, is attempting first to recover from the pandemic gradually and the guidance suggests that this will be the case.
Danone finally bows to investor pressure to split the Chairman and CEO roles. This is a good start, but we hope that the group will accompany this decision with strategic choices to relaunch growth.
The FY20 figures were roughly in line with the expectations. The FY21 outlook seems quite conservative, but positive comments about the potential split of Faber’s roles, divestments or buy-backs were welcomed. More information to come at the next CME on 25 March.
