StockBeat: Danone Shake up Aims to Steer Away From Troubled Waters

StockBeat: Danone Shake up Aims to Steer Away From Troubled Waters

Investing.com  | Oct 19, 2020 10:53

StockBeat: Danone Shake up Aims to Steer Away From Troubled Waters

By Geoffrey Smith 

Investing.com -- Dairy giant Danone SA (PA:DANO) is planning its biggest shake-up in recent times as it tries to turn around a losing battle for market share in the U.S. and China, its most important non-European markets.

The French group said on Monday it’s restructuring itself along geographical lines, creating new regional CEOs for North America (Shane Grant) and for the rest of the world (Veronique Penchienati-Bosetta) and parting with its long-time chief financial officer, Cecile Cabanis.

It will also step up its disposal of underperforming brands as it tries to find a way back to a medium-term target of 3%-5% annual sales growth – a target that will be missed this year. The inclusion of Vega is among those to be put up for sale, a disappointing end to what should have been a profitable venture into plant-based dairy substitutes.

The pandemic has been hard on Danone, a company that has bet aggressively on rising dairy and water consumption in emerging markets in the past. The crisis has borne out many cynics’ belief that it depended too much on overpriced bottled water brands Evian and Volvic to sauce profits and mask underlying profitability problems in the dairy business. The closure of restaurants and bars across the world this year, along with the suspension of many other kinds of corporate hospitality, has led to a collapse in water sales, which are down 17% over the first nine months of the year.

To make things worse, China’s restrictions on imports of dairy produce and infant formula have ravaged the company’s other big money-spinner. The euro’s appreciation hasn’t helped either. It accounted for 7.1 percentage points of a 9.8% drop in third-quarter sales.

The market took the news of restructuring with what can best be termed cautious optimism: a rise of 1.4% is not much compared to the largely uninterrupted slide of over 40% since Donald Trump stepped up his trade war against China 14 months ago.  The new guidance of a 14% recurring operating margin, while an improvement from the first half of this year, is still nearly a full point below where it was less than two years ago. While it talked of delivering 1.8 billion a year in free cash flow, it said nothing about returns to shareholders.

The reset may be welcome, but some investors will feel it could have set the bar a little higher for its new management team.

That it chose not to is due overwhelmingly to the effects of the virus. The guidance for the rest of this year was full of caution: “Looking into the remainder of the year, business remains difficult to predict as the environment is still volatile and much uncertainty remains about the implications of the pandemic as to how exactly lockdown easing, channel dynamics and consumer habits may evolve.”

It flagged the ongoing margin pressure generated by the shift to home consumption and the continued unpredictability of exporting into China.

It looks like a long road back.

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.

';