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Danone narrows FY'19 outlook despite 3.7% jump in Q3 sales

Danone SA on Oct. 18 narrowed its full-year outlook despite reporting a strong performance in the third quarter and announced a minority investment in San Francisco-based Forager Project LLC, a producer of plant-based food and beverages.

The French packaged goods producer saw sales grow 3% year-over-year on a like-for-like basis to €6.42 billion in the third quarter, but slower-than-projected sales growth in the first two quarters dragged down overall like-for-like sales growth in the first nine months to 2.1%. Third-quarter sales grew 3.7% on a reported basis.

The maker of Evian mineral water and Activia yogurt now expects full-year sales to grow between 2.5% and 3% on a like-for-like basis. Its earlier growth projection was about 3%. Danone maintained its recurring operating margin outlook at above 15%.

Danone said it expects mid- to high-single-digit inflation in the cost of raw materials like milk, sugar and fruits and packaging material like PET. It also voiced concern over the "growing geopolitical uncertainties" since the beginning of 2019.

In early morning trading in Paris, Danone's shares were down 5.90% to €73.94.

Sales in regions outside Europe and North America grew 9.1% year over year, partially offset by a 0.5% drop in sales in the major markets.

The strong quarterly sales were driven by 11.4% growth in the specialized nutrition segment to €1.92 billion, boosted by a more than 20% growth in baby food products in China. Medical nutrition saw double-digit sales growth in China and mid-single-digit overall. On a like-for-like basis, the specialized nutrition segment grew 9.8%.

"The return to strong growth momentum for specialized nutrition in Asia is a highlight, reversing the trend reported last year," Danone Chairman and CEO Emmanuel Faber said in a statement.

The group's water division and essential dairy and plant-based, or EDP, segment continued to see softness in the quarter.

The water division witnessed a 0.7% boost in sales to €1.26 billion from €1.25 billion a year ago. The figure was down 0.9% on a like-for-like basis. The company attributed the decline to significantly lower temperatures in Europe in the third quarter compared to the third quarter of 2018.

The EDP business saw third-quarter reported sales up 0.8% year over year to €3.24 billion. On a like-for-like basis, it grew 0.7%. Danone said the segment is facing challenging consumer environments in North America and the Commonwealth of Independent States.

On Oct. 16, the company's venture fund Danone Manifesto Ventures said its investment in Forager Project, which produces and markets plant-based products including yogurt, milk, sour cream, as well as a range of protein and probiotic shakes, will help the company boost its plant-based offering.

"Forager Project and Danone have highly aligned values focused on improving human and planet health through food, and a shared commitment to sustainable, enduring business growth," said Laurent Marcel, CEO of Danone Manifesto Ventures.