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Investing.com -- Danone (EPA:DANO) on Wednesday reported first-quarter results for fiscal 2025 that modestly exceeded consensus expectations on headline organic sales growth (OSG), but the underlying performance revealed persistent pressure on volumes across all divisions.
The group delivered OSG of 4.3%, ahead of the 3.9% consensus compiled by Visible Alpha forecast of 3.6%.
This beat was driven primarily by stronger-than-expected pricing, particularly in Latin America, rather than broad-based volume strength.
The regional picture was uneven. North America emerged as a key area of concern, with organic sales growth of 3.7% falling short of the 4.6% consensus. U.S. Essential Dairy and Plant-based sales grew just 2.9%, below Jefferies’ estimate of 3.7%.
A significant drag came from Danone’s Coffee Creamers category, which accounts for around 25% of U.S. EDP revenues and 5% of group revenues.
Barclays (LON:BARC) noted that recent Nielsen data pointed to a year-on-year decline of more than 20% in this category, as a shelf reset by U.S. retailers favored competitors like Nestlé’s CoffeeMate.
Additionally, a product recall in Danone’s International Delight brand and temporary service disruptions added to the weakness.
While there was some offset from growth in STōK iced coffee and out-of-home EDP channels, Barclays emphasized the need for management to clearly articulate how they plan to address the decline in this strategically important category.
In contrast, the strongest performance came from China, North Asia, and Oceania, where Danone reported OSG of 9.9%, much ahead of both consensus and Jefferies’ estimates of 5.7%.
Growth was led by continued market share gains in infant nutrition, particularly from the Essensis brand, and solid performance in Medical (TASE:BLWV) Nutrition. Mizone-branded beverages also returned to double-digit growth, even in a seasonally softer quarter.
Barclays flagged a notable turnaround in pricing dynamics in the region: after falling 3% in Q4 due to inventory clearance tied to product focus shifts, pricing turned positive in Q1, supporting overall growth.
In Europe, Danone reported OSG of 2%, slightly ahead of the 1.8% consensus. The European EDP segment grew by 1.5%.
However, Barclays highlighted that Danone remains promotional in its everyday dairy range, prioritizing value-added lines such as YoPro, Activia Kefir, and Skyr. Execution risks remain as the company continues to reposition brands like Activia and Actimel.
Latin America stood out as a pricing lever for the group, with price increases accelerating to 11.1%, compared to 4.2% for FY24 and a consensus forecast of just 2.8%. This step-up in pricing more than offset volume weakness and was a key contributor to the overall beat.
Across categories, performance was broadly in line or slightly ahead of expectations. The EDP segment grew 3.7% organically (versus consensus of 3.5%), Specialised Nutrition grew 5.3% (consensus: 4.8%), and the Waters business delivered growth of 4.1% (consensus: 3.7%).
Overall volume growth for the group came in at 1.9%, missing the consensus estimate of 2.9%, while pricing contributed 2.4% to sales growth, beating the 1% consensus.
Despite the uneven divisional performance, management reiterated its full-year guidance for organic sales growth in the range of 3–5%, with recurring operating income expected to grow ahead of sales.
Consensus estimates currently sit at 4% for sales growth and 13.3% for profit, in line with this outlook. Jefferies expects consensus EPS and revenue estimates to remain largely unchanged following the update, although it anticipates a downgrade to volume/mix expectations (consensus currently at 2.6% versus Jefferies’ revised 1.3%).
Valuation continues to be a watchpoint. Danone shares are trading at approximately 19 times next-twelve-months earnings, a premium that Jefferies believes leaves little room for disappointment.
The brokerage maintains an “underperform” rating and a price target of €61, anticipating a derating to 15 times earnings despite supportive earnings momentum.
RBC Capital Markets, meanwhile, maintains a “sector perform” rating with a price target of €73, compared to a last close of €73.74.
Barclays maintained an “overweight” rating reflecting cautious optimism while underscoring the need for stronger execution in North America and a clearer articulation of the EDP strategy in Europe.
This quarter, no stock buybacks were announced. As noted by Jefferies, the company may shift its focus to acquisitions, particularly in areas where performance has remained weak, such as U.S. functional yoghurt, kids’ products, and Silk plant-based products.