PARIS/LONDON French food company Danone (DANO.PA) lowered its 2016 sales growth forecast on Monday, blaming tough market conditions in Spain and problems with a relaunch of its Activia yogurt brand.
Sales volumes in Danone's fresh dairy business have been falling for nearly three years. Activia, one of its key brands, has faced increasing competition and had to drop some claims about the health benefits of its yogurts after these were challenged.
Danone this year relaunched Activia, known in the United States for commercials featuring American actor Jamie Lee Curtis. It aimed to reach a younger audience and said as recently as October that it would be able to stabilize dairy sales in Europe this year.
However, the group said on Monday that sales growth this year would come in slightly below its original target, which called for like-for-like growth of 3-5 percent and a recurring operating margin improvement of 50-60 basis points. It did not give an exact figure for expected sales.
"This is a very ambitious transformation for the brand. We have overestimated the speed at which the turnaround would occur," Danone Chief Financial Officer Cecile Cabanis told analysts on a conference call.
"We have to acknowledge we are not yet at the level we thought we would be at this time."
She would not give further details on Spain beyond referring to a "negative" performance there. Danone is the leading seller of fresh dairy products in Spain, a market that remains highly competitive, with consumers buying more private label products.
Fresh dairy products made up almost half of Danone's sales last year. The company's other products include Evian water and Dumex and Aptamil baby milk formula.
Shares in Danone, the world's largest yogurt maker, fell 3 percent in Paris, with analysts questioning the management's communications strategy.
"At the end of the third quarter there was no such indication," said Liberum analyst Anubhav Malhotra. "It's definitely a temporary hit to market confidence in the company."
He said he was expecting Danone's fresh dairy volume to stabilize in Europe in the early part of 2017, but now that turnaround seems delayed.
The share price fall made it one of the worst-performing stocks on France's benchmark CAC-40 index .FCHI on Monday.
Danone, whose previous troubles include a safety scare with its Chinese baby food business, trades at 18.5 times earnings, a slight discount to the more diversified companies Nestle (NESN.S) and Unilever (ULVR.L), which trade at 20.1 and 19.1 times, respectively.
The sales forecast overshadowed the fact that Danone said it would beat its 2016 target for recurring operating margin improvement thanks to efforts to contain its cost base.
Cabanis, who also declined to set any precise financial forecasts for 2017, said Danone would maintain its marketing spending plans on key brands such as Activia, while looking to cut costs elsewhere in order to boost overall margins.
"Danone's warning... should not have much impact on EPS (earnings per share) forecasts for 2016 but will undermine confidence in management's ability to deliver," said RBC Capital Markets analyst James Edwardes Jones.
Jones kept an "underperform" rating on Danone shares.
(Additional reporting by Gilles Guillaume; Editing by Andrew Callus/Keith Weir)