Groupe Danone (OTC: DANOY) is a French food and beverage company with revenues totaling nearly 15 billion EUR (19.55 billion USD) in 2009. Danone's largest consumer brands include Activia, Actimel, Vitalinea/Taillefine, Danonino/Petit Gervais, Evian, Aqua, and Blendina. Danone's Fresh Dairy Products segment is the company's largest source of income.  In order to take advantage of the growing Baby Nutrition and Medical Nutrition markets, Danone acquired Numico, a world leader in both markets.
Danone competes with companies like Nestle (NSRGY), Unilever (UL), Kraft Foods (KFT), and Cadbury Schweppes (CSG) in the packaged food market. As retailers push private label products, the ability to earn and maintain shelf space at groceries, convenience stores, and other retailer outlets plays a large role in the profitability of packaged food and beverage companies like Groupe Danone. However, Danone's strong consumer brands help it maintain shelf space and profitability. Despite Danone's strong brands, the rapidly increasing costs of raw materials, such as milk, increase Danone's production costs and compress margins.
Second Quarter 2010 Results
FY sales outlook increased to at least +6%; margin and FCF outlook reconfirmed In the second quarter, Danone's sales increased 6.9%. Underlying fully-diluted EPS increased 7.7% to €1.38. Free cash flow from operations increased 34.9% to €858 million.
Danone 2010 Revenues (in euros)
|Fresh Dairy Products||8,555||8,697|
Fresh Dairy Products was Danone's largest segment in 2009, contributing 57% of the company’s total sales. The division includes Danone's four blockbuster brands (Activia, Actimel, Vitalinea/Taillefine, and Danonino/Petit Gervais). Danone is a leading supplier of fresh dairy products with 22% of the market worldwide. Danone's dairy products focus on nutrition and compete with brands like Nestle Milk, Nestle Nutrition, and store brands.
Waters is the company's second largest segment. Danone produced 18 billion liters of bottled water in 2009, making Danone the number two producer or packaged water with market share of 8.5% The group's bottled water brands include Evian, Volvic, and Aqua. These brands compete against brands like Nestle Waters, Dasani, and store brands.
The Baby Nutrition segment is the leading producer of medical nutrition products in 19 countries, most of which are in Europe and Asia. Danone produces brands such as Blendina and Nutricia, which compete with products like Gerber and store brands.
The Medical Nutrition segment offers products for medical patients. These products are intended to improve patients’ quality of life and health and also have a positive impact on the total cost of care. For example, Nutridrink is a drink for elderly people exposed to the risk of malnutrition. Danone is steadily increasing investment in clinical studies to establish the benefits of its products, thereby meeting the needs of both patients and healthcare professionals.
The price of key raw foods used by Danone has increased substantially. In response, Danone has raised its average price per unit of goods. Since 57% of Danone's 2009 sales came from its fresh dairy products, milk and other dairy products are Danone's largest production inputs. Danone's ability to continue passing on price increases will play a big role in its profitability if dairy prices continue to rise.
All of Danone's revenues come from sales of food and beverage items. Therefore, changing consumer demands for food and beverage items directly impact Danone's sales. These changes are sometimes seasonal; for example, consumers tend to demand more hot beverages such as coffee during the colder winter months. These changes can also take place over longer periods of time. For example, consumers have been demanding healthier options when eating out, which reflects a general increase in the importance of health and wellness to consumers. In order to take advantage of this trend, Danone has increased the money it spends on clinical studies to prove the health benifits of its foods by 15 times in the last five years. Additionally, the company purchased clinical nutrition and baby nutrition company Numico in 2007 to bolster its health-conscious product line.
Because Danone reports its revenues in Euros but does 39% of its business outside of Europe, exchange rates affect Danone's revenues. When the Euro appreciates, any transactions recorded in foreign currencies will convert to fewer Euros and lower revenues for Danone. On the other hand, when the Euro depreciates the opposite is true and the weak Euro will boost Danone's sales.