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Earnings

French food group Danone withdraws 2020 guidance despite sales uplift

PARIS (Reuters) - Danone DANO.PA on Tuesday withdrew its financial guidance for 2020 owing to the disruption caused by the coronavirus pandemic but posted higher first-quarter sales as shoppers bought more dairy, plant-based and nutrition products to eat at home.

Chief Executive Emmanuel Faber cautioned that the second quarter would not replicate the first because there is bound to be some de-stocking, while Finance Chief Cecile Cabanis said that additional costs from ensuring business continuity would weigh on the first-half margin.

The world’s largest yoghurt maker said that quarterly like-for-like sales rose a stronger than expected 3.7% to 6.24 billion euros ($6.77 billion).

By 1016 GMT Danone shares were down 2.7% at 62.90 euros.

Increased at-home consumption and stockpiling in North America and Europe in March because of government-imposed lockdowns lifted demand for Danone’s staple dairy and plant-based products by 4.6%, while sales of specialised nutrition products jumped 7.9%.

Finance Chief Cecile Cabanis told journalists that consumers were opting for “indulgence and bigger formats” in dairy and plant-based goods, while brands such as Actimel yoghurt - with immune system support claims - were in strong demand in Europe.

This offset a 6.8% fall in sales at its water division, where demand was hit by the closure of restaurants and cafes. About 40% of the division’s sales are normally consumed away from home, Danone said.

In China, where the relaunch of the Mizone brand had been delayed to the second quarter, water sales fell by about 40%, the group said.

“Second-quarter demand and supply conditions will be broadly and deeply impacted by a global lockdown. Beyond the initial pantry loading trends we observed in March, we are unable to predict how the lockdown may affect both supply and demand,” CEO Emmanuel Faber said in a statement.

“Our board of directors, therefore, has decided to withdraw our financial guidance for the year, while we are managing with a view to protect and leverage our strong cash liquidity situation,” he added.

For 2020 Danone had been targetting like-for-like sales growth of 2-4% and an operating margin above 15%. These goals had already been revised down in February.

However, Danone said it remained confident of delivering its 2030 goals, accelerating topline growth, continuing to maximise efficiencies and allocating capital with discipline.

Faber’s strategy has centered on diversifying the group’s portfolio into fast-growing products featuring probiotics, protein and plant-based ingredients to mitigate slower growth in dairy.

The coronavirus crisis has made Danone even more committed to that strategy, Faber said.

“We absolutely believe that the trust in brands’ health, ethos and fairness is going to be very important, (and) increasingly important in the future, both through and after the COVID crisis,” he said.

In 2017 Danone bought U.S. organic food producer WhiteWave in a $12.5 billion deal to boost growth and bring the company more into line with healthier eating trends.

Reporting by Dominique Vidalon; Editing by Mark Potter and David Goodman

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