PARIS — With the sale of its Earthbound Farm business to Taylor Farms, the transformation of Danone S.A. continues. The company’s first-quarter results show a business on a growth trajectory as it realigns its structure and expands its product lines into new markets and category adjacencies.
“Q1 is, in a nutshell, in line with expectations,” said Cecile Cabanis, chief financial officer and executive vice-president of I.S./I.T., cycles and procurement, Danone. “It shows good progress, and it will lead us to confirm our 2019 guidance as well as our long-term goals.”
Sales during the quarter rose to €6,138 million ($6,935 million) in the first quarter from €6,085 million ($6,875 million), 0.8% on a like-for-like basis. Ms. Cabanis said the weak sales growth was due to changes Danone made to its product portfolio during the quarter, most notably the discontinuation of noncore operations in its Premium Dairy business unit in North America.
“This result reflects continued solid execution against our priorities, and it leads me to fully confirm our full-year guidance of around 3% like-for-like sales growth and at least 15% of recurring operating margin,” she said.
In Danone’s largest business unit, Essential Dairy & Plant Based (E.D.P.), sales rose 0.2% to €3,926 million.
“We expect E.D.P. growth to rebound in the second quarter at more than 2%,” Ms. Cabanis said. “In an environment where competition is increasing, we remain disciplined on our positive growth strategy. We continue to pursue value growth. This was highlighted in Q1 by targeted price increases, investments in more profitable smaller format and portfolio optimization, notably with Premium Dairy, where we discontinued noncore s.k.u.s (stock-keeping units) representing 10% of this business.
“The U.S. category remains under pressure. We are outperforming the category thanks to our investment in pockets of growth. This includes plant-based yogurt continuing to grow double digit. It includes also probiotics with our Activia Dailies that is continuing to post the highest velocities amongst all innovation in the yogurt space, and it also includes low-sugar yogurt.”
In Europe, the company is making investments in the introduction of organic items, probiotic shots, plant-based varieties and products conducive to being consumed on the go. The introduction of Activia Mix & Go is expanding the product line into a new moment of consumption, Ms. Cabanis said.
In Specialized Nutrition, sales rose 0.4% during the first quarter to €1,828 million. The business unit lapped several difficult quarter-to-quarter comparisons, most notably in China, where sales of Early Life Nutrition product sales fell when compared to the first quarter of 2018 when the company saw 50% sales growth.
The Waters business saw sales rise 4% to €1,002 million. In the United States, the Evian brand delivered strong growth as a result of expanded distribution and market share gains in convenience stores.
“Looking forward to the remainder of the year, I’d like to reiterate my strong confidence that sales growth and margin are set to strengthen through the year, and it’s explained by the following topics,” Ms. Cabanis said. “The first one is the base of comparison that will mechanically be more favorable starting from Q2, with the lapping of boycott in Morocco at the end of April and even more from Q3 as the comps for Early Life Nutrition China ease.
“Second, we continue to progress well on our agenda of strengthening our profitable growth model, building on portfolio valorization through pricing, mix and innovation as demonstrated again in Q1.”