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By Ladka Bauerova
Groupe Danone SA, the Evian bottler that bought baby food maker Royal Numico NV last year, posted a fivefold increase in second-half profit on the sale of its cookie unit to Kraft Foods Inc.
Profit in the second half was €3.52 billion ($5.1 billion), up from €649 million a year earlier, 12-month figures released by Paris-based Danone today indicate. Full-year net income was €4.18 billion, above the €3.25 billion median of 17 analyst estimates in a Bloomberg survey.
Danone, also the world's largest yogurt maker, bought Numico and left the cookie business to focus on faster-growing health foods. The company is counting on Numico's Nutricia and Cow & Gate brands for infants to lift profitability, as rising milk costs threaten growth and a trademark dispute weighs on sales in China. The company reiterated its sales-growth forecast of 8% to 10%, excluding acquisitions and currency swings.
"Danone has given reassuring guidance amid a difficult environment for the food sector,'' said Pierre Tegner, an analyst at Paris-based Oddo & Cie, with a 'buy' recommendation on the stock.
Danone also said Chief Financial Officer Antoine Giscard d'Estaing will leave the company and be replaced by Pierre-Andre Terisse, a former executive with cigarette maker Altadis SA. The company didn't give a reason for the CFO's departure.
Operating profit will grow at least 0.3% this year, Danone forecast.
Shares rise Danone rose €1.97 (or 3.7%) to €56 at 9:25am in Paris trading, reducing its drop this year to about 9%. After surging 30% in 2005 and 2006, the shares stalled in 2007 as the trademark dispute with Hangzhou Wahaha Group erupted.
Net income excluding one-time gains, such as the €3.1 billion booked from the cookie sale, increased 9% to €1.3 billion, or €2.71 per share, from €1.19 billion, or €2.44 per share, a year earlier.
Sales from current operations rose 3.6% to €14.6 billion, beating the €13.2 billion estimated in the survey. Bloomberg calculated second-half earnings by subtracting half-year profit from the full-year figure.
The figures "seem to indicate a very good fourth quarter and confirmation of strong pricing power,"' Natixis analysts (including Francois Digard) said in an emailed note.
Numico integration Sales including two months of Numico revenue rose 5.9% to €12.78 billion from €12.07 million a year earlier. Danone's operating margin widened by 0.45 percentage points to 14.4%.
"The group is signing off on a year marked by a number of headwinds,'' UBS AG analyst Eva Quiroga said in an emailed note, before the results were announced. "We believe important catalysts for share-price performance in 2008 to be a solution to the ongoing dispute with Wahaha,'' Danone's estranged Chinese partner, as well as the outlook for Numico, she wrote.
Numico's sales were estimated to grow four times as quickly as the cookie business sold to Kraft. Danone nevertheless suffered a two-level credit rating downgrade by Moody's Corp. after the purchase amid concern the €12.3 billion price was too rich.
"The smooth integration of our Numico business gives me particular confidence in the group's ability to accelerate its growth profile,'' Chief Executive Officer Franck Riboud said in the statement.
Danone, which already sells Bledina baby food in its home market, bought the Dutch company to become Europe's biggest producer of nutrition for young children. Numico will also help it gain a foothold in Asia and the Middle East.
Yogurt, Wahaha Annual sales climbed 12% at Danone's yogurt unit, its biggest contributor to revenue, as more consumers bought digestion-enhancing Activia yogurt and immunity-boosting milk drink Actimel. Operating margin at the unit widened by 0.62 percentage points to 14%, Danone said.
Danone raised prices on its dairy products to counter surging costs, and plans farms from China to Saudi Arabia to better control milk production expenses.
Revenue growth from beverages slowed to 4%, dragged down by cold weather in the third quarter and the trademark dispute with Wahaha. The two companies agreed in December to renew talks. Danone stopped including Wahaha sales in its accounts from the second half of 2007.
"The fact that Danone deconsolidates Wahaha is positive," ING's Gulpers said. "It's the best option.''
Danone did not provide sales figure for the cookie division. Kraft, the maker of Oreo cookies and Toblerone chocolate bars, completed its $7.8 million purchase of the business in November.
Danone plans to raise its annual dividend by 10% to €1.10 a share.
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