Research that is free to access for all investors. Companies commission these providers to write research about them.
Brokers who write research on their corporate clients and make it available through our main bundle offering.
Research that is paid for directly by asset managers. Only accessible to institutional investors permissioned for access.
Event in Progress:
View the latest research on other companies in the sector.
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.
Danone Danone SA
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...
BN BN NESN LISP RKT ULVR K K HSY HSY GIS GIS CPB CPB MDLZ MDLZ SJM SJM CAG CAG MKC MKC KHC KHC FEVR JDEP OTLY
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.