PARIS — The year ahead will be one of “construction” for Danone S.A., as the Paris-based company begins a new chapter with the $12.5 billion acquisition of WhiteWave Foods now completed. The transaction, which closed on April 12, nine months after the deal was first announced, is expected to be “strongly accretive” to Danone’s earnings per share in 2017, said Cecile Cabanis, chief financial officer of Danone.
|Cecile Cabanis, c.f.o. of Danone|
“With the closing last week, we ended a long nine-month process, which caused growing managerial and business disruptions in the U.S. in a low-growth environment for the food sector,” Ms. Cabanis said during an April 20 earnings call with financial analysts. “Having now completed the closing, we have joined both teams together with the extensive work done by the integration team that was in place since the announcement in July. We will be able to fully deliver our synergy plan, address the current business challenges and accelerate growth” in the second half of the year.
Danone expects to achieve $300 million in synergies at the operating income level on an annual basis by 2020, with recurring e.p.s. growing at a double-digit rate in constant currency. The addition of WhiteWave is expected to increase full-year like-for-like sales growth by 0.5% to 1%.
But while the future looks bright with WhiteWave, Danone continues to face problems in its core dairy business. In the first quarter, Danone sales increased 3% on a reported basis to €5,464 million ($5,847.2 million), up 0.7% on a like-for-like basis, reflecting a 2.6% decline in volume offset by a 3.3% increase in value.
The company’s Fresh Dairy Products division sales fell 2.3% on a like-for-like basis to €2,741 million ($2,933.4 million), driven by a 5.3% decrease in volume and a 3% increase in value. Contributing to the lower result were difficult market conditions in Europe and slower category growth and price pressure from competitors in the United States.
“As a category leader, Danone will be focused on bringing the (yogurt) category back to growth with different drivers,” Ms. Cabanis said. “I will mention two. The first one is the change of perception of the category through the improvement of the nutritional profile of each portfolio: naturality, non-G.M.O. ingredients, sugar reduction, and starting to execute the Danone pledge on its three flagship brands: Oikos, Danimals and Dannon, converting each brand portfolio to non-G.M.O. verified and all-natural. The second one is to incorporate category building messaging through each brand plan, reinforcing the positive and health benefit of the yogurt category.”
Danone’s Waters division sales rose 1.7% to €1,024 million ($1,095.9 million), reflecting a 1.3% decrease in volume and a 3% increase in value. Early Life Nutrition sales increased 4.1% to €1,285 million ($1,375.2 million), with a 0.1% rise in volume and a 4% increase in value, and Medical Nutrition sales grew 8.8% to €414 million ($443.1 million), with volume and price mix contributing 4.8% and 4% growth, respectively.
“So, all in all, excluding Dairy, each of our categories have delivered positive performance despite an increasingly volatile context,” Ms. Cabanis said. “And this trend reflects all the work that we have done on our portfolio especially to improve the mix quarter-after-quarter.”
The combination of Danone and WhiteWave in North America will operate as a strategic business unit named DanoneWave and will include the current North American businesses of Danone Dairy and WhiteWave under the leadership of Lorna Davis, chief executive officer of the combined entity. Based in Denver, WhiteWave Foods is an international competitor in the plant-based, organic dairy and organic produce categories. The company owns such brands as Silk, So Delicious, Horizon Organic, Earthbound Farm and Alpro and generated sales of nearly $4.2 billion in 2016.
Blaine McPeak, former chief operating officer of WhiteWave Foods, has been named c.o.o. of DanoneWave, with responsibility for the business operations, building, commercializing and implementing the strategic growth plans of the combined entity.“2017 is for us a year of construction that will continue to strengthen Danone in an even more resilient and balanced model, through continued disciplined resource allocation, efficiency acceleration and preparing for growth acceleration with an enhanced portfolio of products and brands to sell our consumer in a meaningful way,” Ms. Cabanis said.