French food group Danone keeps profit outlook despite weak Q1

Danone said it was on track to deliver on its 2020 goals for an operating margin above 16 percent of its sales. (Reuters)
Updated 17 April 2019

French food group Danone keeps profit outlook despite weak Q1

  • Danone said first-quarter underlying sales had risen by a relatively modest 0.8 percent to €6.138 billion
  • The company expects sales growth to accelerate in the second half of the year.

PARIS: French food group Danone kept its forecasts for a further rise in sales and profits this year although weaker demand for infant formula products in China and a consumer boycott in Morocco weighed on first-quarter sales.
Danone, the world’s largest yoghurt maker, said first-quarter underlying sales had risen by a relatively modest 0.8 percent to $6.94 billion (€6.138 billion), marking a slowdown from 2.4 percent growth in the fourth quarter of 2018.
The company nevertheless expected sales growth to accelerate in the second half of the year.
“The first quarter showed a start of the year in line with expectations ... We are pleased with the momentum of the business which will become increasingly visible from the second quarter. This gives us every confidence that we will meet our full year guidance,” CEO Emmanuel Faber said in a statement.
Danone reiterated it was targeting group like-for-like sales growth of around 3 percent and an operating margin above 15 percent for 2019.
Danone added it was on track to deliver on its 2020 goals for an operating margin above 16 percent of its sales and like-for-like sales growth of 4-5 percent.
Danone’s waters division and its dairy business put in solid performances over the quarter, but sales of Danone’s Early Life Nutrition products in China fell around 15 percent in the quarter, partly due to a lower birth rate in China.
This compared with a 10 percent decline in the fourth quarter 2018 and a 20 percent decline in the third quarter, in that division.
China is an important source of growth for Danone, contributing about 30 percent of sales of the Early Life Nutrition business, which makes infant formula and general baby food products.
Danone said it still expected the business in China to return to growth in the second half of 2019.
Danone also said its sale of Earthbound Farm, announced last week, would improve its recurring operating margins in 2019.


Japan’s households tighten purse strings as sales tax and typhoon hit

Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.