Food producer Danone said on Feb. 16 that it was targeting double-digit recurring EPS growth at constant exchange rates in 2018, despite challenging markets and rising prices for commodities.
Danone, which makes yogurts such as Activia and Oikos and distributes bottled water under the Evian and Volvic brands, said in a statement that it expected to advance toward its target through sales growth and an improved recurring operating margin.
However, the market volatility it encountered in 2017 is expected to persist. The Paris-based company predicted a mid-single-digit rise in the cost of materials for its products and packaging in 2018. This comprised a low- to mid-single-digit rise in the price of milk; a double-digit rise in the cost of crude oil, from which plastics are derived for packaging; and inflation in other food products such as sugar and fruit.
"Navigating sustained market volatility is becoming a normal and inherent part of our operating model," CFO Cécile Cabanis told analysts during a conference call.
Danone's 2018 EPS excludes the impact of the cut in its stake in Yakult Honsha Co. Ltd. The company announced Feb. 14 that it planned to reduce its shareholding from 21.29% to about 7%.
Danone reported sales in the fourth quarter ended Dec. 31, 2017, increased 3.7% year over year to €6.10 billion from €5.36 billion in the same period a year earlier, despite a 1.7% drop in volume. The sales figure was below a mean consensus of analysts' estimates compiled by S&P Capital IQ of €6.19 billion.
For full year 2017, sales on a like-for-like basis increased 2.5% year over year to €24.68 billion from €21.94 billion in 2016 as volume shrank 1.4%. Brazil was a weak spot with sales in 2017 tumbling by a double-digit percentage.
From April 12, 2017, Danone consolidated WhiteWave Foods, the U.S. maker of premium organic dairy, non-GMO, plant-based alternatives to milk and yogurts with brands such as Silk, So Delicious and Alpro. Danone acquired WhiteWave for an enterprise value of $12.5 billion.
The consolidation boosted 2017 sales by 12.7% year over year but reduced recurring operating margin by 33 basis points. Nonetheless, recurring operating margin jumped 70 basis points year over year to 14.36%, aided by efficiencies including $50 million in cost synergies from the WhiteWave deal.
Recurring EPS for 2017 rose 12.6% year over year to €3.49 from €3.10 as net income jumped 42.6% year over year to €2.45 billion from €1.72 billion. The recurring EPS beat an S&P Capital IQ-compiled mean consensus of analysts' estimates of €3.43.
CEO Emmanuel Faber said during the conference call that Danone was optimistic about the yogurt market in the U.S. in 2018 due to long-term consumption trends. "We see probiotics as a driver of that growth," he said.
In early afternoon trading in Paris, Danone's shares were up €1.46, or 2.3%, at €65.58.