Danone beats sales, cash flow; Europe remains a challenge

Investing.com -- Danone (EPA:DANO) on Wednesday reported solid sales performance in 2024, with fourth-quarter organic sales growth of 4.7%, surpassing analyst expectations. 

Shares of the the French food group were up 1.4% at 05:20 ET (10:20 GMT).

The company’s performance was driven largely by strong volumes in North America and China, though weaker-than-expected pricing in Europe tempered the overall results.

Danone’s U.S. Essential Dairy and Plant-Based division was a key contributor to the sales beat, posting 7.8% growth in the fourth quarter against Jefferies’ estimate of 6.9%. 

However, the company’s European EDP performance remained stagnant, raising questions about its repositioning strategy for brands such as Activia and Actimel. 

Despite the sales momentum, the company’s full-year 2024 margin remained at 13%, in line with market expectations, but without an upside surprise that could have spurred investor enthusiasm.

Danone delivered a free cash flow beat of €3 billion for 2024, exceeding consensus expectations of €2.45 billion. Adjusted earnings per share grew 2.5% to €3.63, surpassing market consensus. 

Return on invested capital increased by 50 basis points to 10%, and the company announced a dividend of €2.15 per share, marking a 2.4% increase from the previous year.

Danone’s FY25 guidance remains in line with estimates, targeting 3-5% like-for-like growth, with recurring operating income expected to grow faster than sales. 

The recurring EBIT margin increased by 39 basis points in FY24, resulting in €3,558 million of EBIT.

Across its regional markets, Europe saw a 1.8% like-for-like sales growth, driven by a 3% increase in volume and mix, though pricing declined by 1.2%. 

North America delivered strong results with a 7.7% increase in sales, benefiting from a 5.9% boost in volume and mix and a 1.9% increase in pricing. 

In China, North Asia, and Oceania, Danone reported a 6.8% like-for-like growth, primarily fueled by a 9.8% volume and mix increase, though pricing remained under pressure, declining by 3%. 

Latin America posted a 4.7% rise in sales, though performance was impacted by the licensing out of the milk business in Brazil. 

Meanwhile, the Rest of the World segment recorded a 5.4% increase in sales, supported by robust growth in Specialised Nutrition and Waters (NYSE:WAT).

The company’s divisional performance also reflected positive momentum. The Essential Dairy and Plant-Based (EDP) category posted a 4.7% like-for-like sales growth, while Specialised Nutrition saw a 4.6% increase. The Waters segment recorded a 5.3% rise, reflecting strong demand across key markets.

Danone’s future strategy emphasizes targeted acquisitions to strengthen its portfolio, following recent divestments. 

While share buybacks are not currently planned, the company is expected to invest in addressing weaker areas. 

Success will depend on improving European operations and leveraging growth in key markets like China and North America.