French Food Group Danone Warns of Tough First Quarter

By Dominique Vidalon

PARIS (Reuters) – Danone said 2021 would be a year of recovery with sales back to growth from the second quarter, and a return to profitable growth in the second half after the coronavirus crisis hit the French food group’s 2020 sales and profits.

Chairman and Chief Executive Emmanuel Faber, who is under growing pressure as activist shareholders push for management changes to lift returns, said Danone’s share price “is not where we would like it to be” and said he was open to dialogue with investors.

Danone, the world’s largest yoghurt maker, said its 2021 recurring operating margin would broadly in line with the 14% of sales achieved in 2020, although it warned that the first quarter would still be tough due to unfavourable comparables.

“We are focused on preparing our return to sales growth as soon as the second quarter and fully confident that we are building the right conditions and momentum to reconnect with our profitable growth as soon as H2,” Faber said in a statement.

Danone made the forecast after it reported 2020 like-for-like sales fell 1.5%, which was slightly better than analysts’ estimates in a company-compiled consensus for a 1.6% decline.

The maker of Evian and Badoit bottled water said this reflected a fall in water sales to the restaurant sector during government-enforced lockdowns. Coronavirus travel restrictions in Asia also weighed on the sales of infant formula.

The 2020 operating margin declined by 150 basis points on a like-for-like basis to 14% of sales, in line with the company’s guidance and analysts’ expectations of a 14% margin.

Swiss rival Nestle on Thursday posted organic sales growth of 3.6% and an operating margin of 17.7% of sales for 2020.

U.S. investment company Artisan Partners, which said it had built up a stake of over 3% in the Activia yoghurt maker, has criticised the firm’s strategy and its share price performance demanding Danone split the chief executive and chairman roles.

Activist investor Bluebell, which has not disclosed its holding, has called on Faber to step down.

Faber, in his seventh year as chief executive, has pursued a strategy centered on diversifying the group’s portfolio into fast-growing products featuring probiotics, protein and plant-based ingredients to mitigate slower growth in dairy.

In line with that strategy Danone on Friday said it had agreed to buy U.S. plant-based foods specialist Earth Island, in a deal that would help the group reach a target of generating 5 billion euros ($6.1 billion) of plant-based sales worldwide by 2025.

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Edmund Blair)