Shares in Danone fell to their lowest in eight months after
the group cuts its full-year forecasts, blaming the blow to Asian performances from recalls prompted by Fonterra's botulism scare.
The French-based dairy giant said that sales at its baby
nutrition division dropped 13% to E924m in the July-to-September quarter, a
decline reflecting the impact from Fonterra's alert over the discovery of
potentially fatal bacterial contamination in whey product supplied in Asia to
groups including Danone.
While the warning from New Zealand-based Fonterra, the world's
top dairy exporter, turned out to be a false alarm, the all-clear came too late
to prevent a hefty blow to consumer confidence in key markets including China,
and to avoid product recalls by the likes of Danone.
"The false alert issued by Fonterra… triggered the recall of
selected infant formula products and led to significant losses in sales,
earnings and cashflow," said Danone, which is seeking compensation from
Danone, which recalled product in eight countries, estimated
the hit to sales at E170m in the July-to-September quarter, and at E350m in the
However, the group flagged an impact on costs too, pegged at
E280m for the full year, as it stages a "heavy communication campaign" and "business
development acceleration" in an effort to revive sales.
"Action plans to restore sales are being deployed in
affected markets," the group said.
However, while this campaign is "generating results
effectively", headway is being made "very gradually".
Pierre-Andre Terisse said that the group's priority was to "get
back on track for strong and sustainable growth" in baby nutrition in Asia "as
early as possible in 2014".
The declining performance in the baby nutrition division
prompted Danone to cut to 4.5%-5%, from 5%, its forecast for like-for-like
sales growth, despite decent performances in the July-to-September quarter in
its other three divisions.
In the dairy division, the group's biggest, sales rose 4.6%
on a like-for-like basis, reflecting an "excellent performance in North
America, driven by the popularity of Greek yoghurt, and a recovery in Russia,
at a time when the core European market showed "signs of stabilisation".
Danone also warned that its trading operating margin, which
it had seen falling by 0.3-0.5 percentage points this year, would now decline
by 0.8 points, also on a like-for-like basis.
Free cash flow for 2013, which it had pegged at about E2bn,
would now come in at E1.5bn-1.6bn.
The statement received a tepid response from investors.
S&P Capital cut to E60, from E67, its price target on Danone shares, although
keeping a "buy" rating.
The shares stood 3.9% lower at E50.97 in lunchtime deals in
Paris, having touched E50.30 earlier, the lowest since February.