Danone Cuts Profitability Forecast After Sales Stall in Spain

The world’s largest yoghurt maker released a statement saying that there had been a “deterioration in consumption” across Southern Europe, but that this trend had proven especially steep in Spain. Danone said demand outside Western Europe in Asia, America, Africa, Russia and the Middle East remained robust while business in France was holding up comparatively well.

20 Jun 2012 --- Danone has warned of an impact to its profits this year due to Spanish consumers switching from the company’s premium Actimel and Activia range to cheaper alternatives, this, coupled with rising milk prices has caused the company to re-evaluate its previous forecast.

The world’s largest yoghurt maker released a statement saying that there had been a “deterioration in consumption” across Southern Europe, but that this trend had proven especially steep in Spain.

Danone has said that they intend to respond to these pressures by renewing support for these brands and cutting prices, in an effort to make their products more competitive. The trend is particularly concerning because Spain is one of Danone’s biggest markets, accounting for 7 percent of group sales and 12 percent of profits.

Chief Financial Officer Pierre-Andre Terisse warned reduced demand in Spain will cut the group's 2012 operating profit margin by 0.5 points to 14.2 percent after a previous stable forecast, and slow its underlying sales growth in the second quarter to around 5 percent from the first quarter's 6.9 percent.

"Consumers are looking for cheaper products," Terisse said, adding that Danone would respond with price cuts.

He also warned milk and packaging costs for its range of yoghurts and baby milk formulas were greater than expected since the start of the year, putting more pressure on margins.

Danone said demand outside Western Europe in Asia, America, Africa, Russia and the Middle East remained robust while business in France was holding up comparatively well.

The group is expecting raw material inflation for 2012 to rise by a mid-to-high single-digit percentage from a previous low-to-mid single digit forecast, while it is holding steady its 5-7 percent like-for-like 2012 sales growth target and forecast of free cash flow of 2 billion euros for 2012.