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Is Q2/H1 relevant? Arguably not Given the exceptional context, one can validly question whether Q2/H1 trends have any relevance to equity valuations. Notwithstanding this, we thought it a timely juncture to revisit estimates across our Consumer Staples coverage universe. Where we stand relative to near-term consensus Relative to near-term consensus expectations (Visible Alpha: Q2/H1), we find ourselves materially below consensus on key metrics for most names. The notable positive exceptions to this being the brewers and Reckitt. Taking a longer-term perspective: we see scope for relative multiple expansion Assuming that we will remain in a low rate environment for the foreseeable future, staples look reasonably good value to our eye. Core EU Staples (Food, HPC and Bevs) currently trade at a 27% premium relative to market, albeit against an inflated market P/E. Looking forward to CY21e, we are at a 38% premium and on CY22e, we are at a 49% premium. Danone: We downgrade to Neutral While we believe that Danone is relatively cheap, we increasingly struggle to see what will trigger the market to positively re-appraise. Organic growth in FY20e will likely be lacklustre (0.0%), structural questions will likely only deepen (Waters, Dairy, Chinese IMF), there will be no near-term CMD, Nestle''s US Water disposal is unlikely to be a positive valuation marker and to our mind a portfolio review is all well and good but there is not an obvious SOTP argument. While Danone may be relatively cheap, we suspect it will stay that way. We downgrade to Neutral. TP to EUR66. We revise target prices across the sector We revise target prices across the space to reflect both a re-appraisal of our EU Food, HPC and Brewer''s benchmark multiples plus the 6 month roll-forward of our target earnings base. The most noteworthy revisions are at ABInBev (+14%), Danone (-8%), L''Oreal (+12%) and Reckitt (+13%).
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DANONE - NEUTRAL | EUR70 vs. EUR68 (+10%) Update on the financial situation after the AGM Extra costs of EUR100m in H1 Q2 sales to be in highly negative territory Cutting the 2020e EPS by 7%
Danone
Danone Waters sales expected to decline by around -30% in Q2 Post market close on Friday (26th June 2020) and following its AGM, Danone issued a statement indicating that as a consequence of weakness in out-of-home channels, it expects Waters sales to decline by around -30% in Q2 (Visible Alpha consensus LFL is currently -10.8%). While there were other points of note around the AGM (discussed within), to our mind this was the most immediately noteworthy point. Waters in context In FY19, waters accounted for c.18% of Danone''s sales and c.8% of Nestle''s sales. We estimate that both waters businesses generate around 35/40% of their sales in out-of-home / impulse channels. Danone: we revise FY20e EPS by c.-7% and FY21e EPS by c.-3% Reflecting both weakness in Waters and on-costs associated with the Covid-19 pandemic (EUR100m of incremental costs are expected in H1), we revise our FY20e EPS by c.-7%. Our FY21e EPS is reduced by c.-3% reflecting both updated FX (-1%) and an assumption that Waters will not fully rebound. Nestle: we revise our FY20e EPS by c.-5% and our FY21e EPS by c.-5% Reflecting Swiss Franc strength (which has implications for both revenues and margins) and likely weakness in waters and other out-of-home channels, we revise our FY20e EPS by -5%. Our FY21e EPS is also reduced by c.-5% reflecting FX (c.-3%), the assumed disposal of part of US Waters (c.-1%) and an assumption that out-of-home channels will not fully rebound. Target price implications Reflecting our FY21e EPS revisions, we revise our Danone target price from EUR74 to EUR72 (Outperform rating maintained) and our Nestle target price from CHF111 to CHF105 (Neutral rating maintained).
Danone Nestle
We''ll remember our 22nd CEO Conference for two reasons. First, it was the biggest ever: 100 CEOs and 2,100 investors taking over 16,000 seats. The second? No prizes for guessing. Next year we aim to combine our real and virtual worlds, and hope to see you in Paris... or on screen! The most up-to-date view from corporate Europe We''ve condensed and cleanly presented all the highlights from the management presentations. It''s your comprehensive guide to the key takeaways from 124 leading European companies. Who would you most like to sit beside the fireside with? Our most-attended presentation was, as last year, ASML, followed by L''Oreal, Danone, Michelin and Linde. See One for the Kidz for our ten-year view on ASML, L''Oreal, and more. Keynote speakers: a wide-angle view on unprecedented times Laurent Solly (Facebook) outlined his vision of tech opportunities, Joerg Kukies (German Finance Ministry) discussed globalisation and finance and Sir Martin Sorrell (S4 Capital) took the measure of consumer and citizen changes. Megatrends: change is accelerating Attendee after attendee observed that Covid-19 is both leading to transformations and ratcheting up existing trends, notably digitalisation. Watch this space. Good, bad or ugly? The answer was: ''Very good, actually'' If we had one big surprise, it was the number of positive messages. Managements clearly feel they are resilient, can grow and in some cases can acquire weaker rivals. ESG remains at the heart of our collective future Nothing in the current crisis seems to have dented the widespread desire by corporates to ramp up their environmental and social strategies.
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DANONE - NEUTRAL | EUR68 vs. EUR72 (+8%) Challenges building from Q2 Sales in March up high single digit due to stock loading A lack of visibility on the remainder of the year 2020e EPS cut by 6% - FV adjusted to EUR68
Strong Q1 results boosted by pantry loading and the shift to at-home consumption, but the 2020 guidance is withdrawn due to the lack of visibility related to COVID-19. The group did not seem confident that the performance would continue in the coming quarters and warned that the group’s margins would be impacted.
DANONE - NEUTRAL | EUR72 vs. EUR76 (+11%) Q1 sales better than expected by the company Organic sales growing 3.7% over the quarter Full year guidance withdrawn
DANONE - NEUTRAL | EUR72 vs. EUR76 (+6%) COVID-19 aggravating the sales growth issue 2020 guidance is now for 2-4% organic sales growth… …and an EBIT margin >15% Sales expected to rise only3-5% in the mid term EPS cut by 5% on average over the next three years
Danone’s FY19 results were roughly in line with the consensus and our estimations on both the top and bottom line. It was no surprise that the group downgraded its guidance last October given the clear indications. The main news is, however, the FY20 guidance cut on the back of the Coronavirus and the €2bn investment plan (2020-22). While we were already cautious about its ability to deliver on its previous 2020 targets, we now see this new guidance as more realistic.
Q4 organic sales growth accelerating, as expected FY EBIT margin slightly better than expected More modest objectives for 2020
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 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
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
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.
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.
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.
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.
Reassuring numbers despite boycott in Morocco, driven by Specialised Nutrition and the pick up in EDP North America. Our Add recommendation is maintained.
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.
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.
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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