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Danone yogurt sales were weak in U.S. and Russia

Eric Gaillard/Reuters

Danone cut its 2019 sales growth outlook after missing third-quarter sales expectations on Friday, sending shares in the French food group down 7 per cent.

The world’s biggest yogurt maker said cool weather in August had hit sales of water in Europe, while yogurt sales were weak in the United States and Russia, taking the shine off strong baby food sales in China.

“We close the third quarter somewhere below where we wanted to be,” Chief Finance Officer Cecile Cabanis told analysts, adding: “We do not control the weather.”

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She expressed confidence that Danone’s sales would accelerate in the fourth quarter with strong growth expected in baby food in China along with a further expansion in sales of its plant-based business that makes products such as soya yogurt. She said water sales would improve in the fourth quarter versus the third quarter’s performance.

Danone is now aiming for 2019 group like-for-like sales growth of 2.5 per cent-3 per cent against a previous forecast of around 3 per cent.

The company still expects an operating margin above 15 per cent for 2019, putting it on track for its 2020 goals of an operating margin of above 16 per cent and like-for-like sales growth of 4-5 per cent, Cabanis said.

By 0854 GMT Danone shares were down 7.8 per cent at 72.42 euros.

Jefferies analysts said: “Q3 like-for-like has missed materially and FY 2019 top line guidance has been trimmed.”

“Hitting the lower end of sales guidance implies like-for-like growth of 3.7 per cent in Q4, relative to consensus 4.5 per cent.”

Danone, whose yogurt brands include Actimel and Activia, had third-quarter sales of 6.418 billion euros ($7.1 billion).

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This marked a like-for-like rise of 3.0 per cent that was below analysts’ expectations for 3.8 per cent growth, but was an acceleration from 2.5 per cent growth in the second quarter.

STRONG CHINA PERFORMANCE

China contributes about 30 per cent of sales to the Danone’s Early Life Nutrition business, which makes infant formula and general baby food products.

This division’s sales in China returned to growth in the second quarter after a slump in the first quarter partly due to lower birth rates. Growth accelerated further in the third quarter to more than 20 per cent, marking the highest ever quarter in terms of net sales.

Sales in China were helped by a focus on more premium products, an expansion towards cities where Danone has a bigger presence, and an increase of sales via E-commerce.

Danone’s Essential Dairy & Plant-based division reported sales growth of 0.7 per cent, with Europe continuing to improve.

In North America, coffee creamers and plant-based products posted solid growth, although premium dairy product sales lagged while in Russia premium dairy sales fell as consumers traded down.

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Revenues at Danone’s waters division, which has brands such as Evian and Badoit, were down 0.9 per cent as sales in Europe suffered from high comparisons with the year-ago quarter when sales had been boosted by particularly hot weather.

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