Chinese baby food demand helps Danone Q1 sales beat forecasts

Key Points
  • Q1 sales 6.085 bln euros
  • Q1 sales up 4.9 pct l-f-l vs est 3.9 pct
  • Keeps 2018 goals, to accelerate in 2018 towards 2020 goals
Cartons of strawberry yogurt pass along a conveyor belt before packaging at the Group Danone in Russia dairy production plant
Andrey Rudakov | Bloomberg | Getty Images

French food group Danone kept its guidance for a further rise in profits and sales this year after first quarter underlying sales growth beat market expectations, led by strong demand for baby formula products in China.

Danone reported a 4.9 percent rise in first-quarter underlying sales to 6.085 billion euros ($7.53 billion).

The quarterly performance was above a company-compiled median forecast, based on 22 analyst estimates, of 3.9 percent like-for-like growth in group sales.

Danone, the world's largest yogurt maker whose brands include Actimel and Activia, said its dairy business in Europe was improving although sales remained slightly negative.

In North America, where Danone is integrating U.S. organic food group WhiteWave, its premium dairy business also still faced challenging conditions.

"We are reaffirming our confidence in the agility of our model to navigate a volatile environment to deliver our 2018 guidance and to accelerate towards our 2020 ambition," chief executive Emmanuel Faber said in a statement.

The company, alongside consumer goods peers such as Nestle and Unilever, is under investor pressure to improve results and it needs to deliver on 2020 profit margin and sales growth targets it set last year.

Danone's first quarter also marked an acceleration from 3.7 percent growth in the fourth quarter of 2017.

For 2018, Danone reiterated it expected a double-digit rise in 2018 underlying earnings per share (EPS), excluding the impact of the sale of a stake in Japan's Yakult.

Danone has suffered slower growth overall than its rivals, largely due to weakness in its dairy business in Europe, which has had to contend with sluggish demand and the relatively unsuccessful Activia re-launch, while in China its baby food and waters businesses have had regulatory issues.

However, the picture has changed in China where there is been strong demand for baby formula products due to a sharp rise in birth rates tied to the end of the one-child policy, growth of urbanization and the affluent middle class.

Danone has benefited from strong Chinese demand for its high-end formula brands such as Aptamil and Nutrilon and from its strategy of developing direct distribution in China.

Sales at its 'Specialized Nutrition' business, which now includes baby food and medical nutrition products, rose 14.5 percent in the first quarter, accelerating from 8.4 percent growth in the fourth quarter 2017.

The company said the growth reflected a more than 50 percent increase in demand for its infant formula in China.

Chief Financial Officer Cecile Cabanis nevertheless cautioned that Danone expected a "normalization" of market demand in China during the second half of the year.