Groupe Danone (DANOY)

QUOTE AND NEWS
MarketWatch  Nov 20  Comment 
Fresenius and European buyout firm Permira have made a joint bid for Danone’s unit, as the French group pushes to advance a sale that has run into several road bumps.
Reuters  Nov 20  Comment 
The German medical group Fresenius and the Permira investment fund have made an offer for the medical nutrition arm of Danone , The Wall Street Journal reported on Wednesday,...
Wall Street Journal  Nov 19  Comment 
German health care group Fresenius SE & Co. KGaA and European buyout firm Permira have made a joint bid for Danone SA’s medical nutrition business, according to people familiar with the matter, as the French group pushes to advance a sale that...
newratings.com  Nov 4  Comment 
PARIS (dpa-AFX) - French dairy giant Danone SA (DANOY.PK) said that it will acquire an additional 21.75% interest in Centrale Laitière (Morocco) from SNI for an amount of 278 million euros. The transaction will raise Danone's equity stake in...
Agrimoney.com  Nov 3  Comment 
Danone spends $347m lifting its stake in Centrale Laitiere, in its second deal in four days. Fonterra flags the appeal of emerging markets too
Agrimoney.com  Oct 31  Comment 
Danone pays $550m for a stake in one of China's top infant milk groups, while Aspen Holdings buys 50% of a New Zealand supplier to the market
Financial Times  Oct 31  Comment 
French group tightens ties to China’s biggest milk producer with $550m investment in Yashili
The Economic Times  Oct 31  Comment 
The Shanghai Composite Index rose 0.9 per cent to a 20-month high of 2,412.5 points by midday, while the CSI300 of the leading Shanghai and Shenzhen A-share listings climbed 1.1 per cent.
Wall Street Journal  Oct 31  Comment 
Danone has agreed to acquire a 25% stake in Chinese milk powder maker Yashili International Holdings Ltd. for $566 million to bolster its presence in China.




 

Groupe Danone (OTC: DANOY) is a French food and beverage company with revenues totaling nearly 15 billion EUR (19.55 billion USD) in 2009.[1] Danone's largest consumer brands include Activia, Actimel, Vitalinea/Taillefine, Danonino/Petit Gervais, Evian, Aqua, and Blendina.[2] Danone's Fresh Dairy Products segment is the company's largest source of income. [3] In order to take advantage of the growing Baby Nutrition and Medical Nutrition markets, Danone acquired Numico, a world leader in both markets.[4]

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.[5] Despite Danone's strong brands, the rapidly increasing costs of raw materials, such as milk, increase Danone's production costs and compress margins.[6]

Company Overview

Business and Financial Metrics

Second Quarter 2010 Results[7]

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)[8]

Segment 2009 2008
Fresh Dairy Products8,5558,697
Waters2,5782,874
Baby Nutrition2,9242,795
Medical Nutrition925854
Total Revenues14,98215,220

Business Segments

Fresh Dairy Products (57% of 2009 revenue)

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.[9] Danone's dairy products focus on nutrition and compete with brands like Nestle Milk, Nestle Nutrition, and store brands.

Waters (17% of 2009 revenue)

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%[10] The group's bottled water brands include Evian, Volvic, and Aqua. These brands compete against brands like Nestle Waters, Dasani, and store brands.

Baby Nutrition (20% of 2009 revenue)

The Baby Nutrition segment is the leading producer of medical nutrition products in 19 countries, most of which are in Europe and Asia.[11] Danone produces brands such as Blendina and Nutricia, which compete with products like Gerber and store brands.

Medical Nutrition (6% of 2009 revenue

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.

Trends and Forces

Dairy prices on the rise

The price of key raw foods used by Danone has increased substantially. In response, Danone has raised its average price per unit of goods.[12] 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.[13]

Consumers Demanding Healthier Foods

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.[14] 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.[15] 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.[16] Additionally, the company purchased clinical nutrition and baby nutrition company Numico in 2007 to bolster its health-conscious product line.[17]

Strong Euro Hurts Danone's Sales

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.

In order to minimized the effects of exchange rate fluctuation, Danone purchases financial instruments such as swaps.[18]

Competition

Danone competes with other packaged foods companies as well as store brands from retailers such as Safeway (SWY), Wal-Mart Stores (WMT), and Walgreen Company (WAG). Danone's main competitors are:

  • Nestle (NSRGY)-A Swiss company that produces packaged food and beverages as well as products for the personal care market. Nestle is the worlds largest packaged food company and a worldwide competitor for Danone. [19]
  • Unilever NV (UN)-A Dutch company that produces packaged foods and products for the home and personal care markets. Unilever is one of Danone's largest international competitors.[20]
  • Kraft Foods (KFT)-A U.S. company that produces packaged foods products. Kraft is one of Danone's largest U.S. based competitors.[21]
  • Cadbury Schweppes (CSG)- A U.K. company that makes confectionery and non-alcoholic beverages. Cadbury Schweppes primarily makes carbonated soft drinks, which do not compete directly with Danone's milk- and water-based drinks. However, its carbonated beverages are possible alternatives to Danone's beverages.[22] According to the National Restaurant Association, more and more customers are ordering specialty waters (like Evian) instead of carbonated soft drinks. This could give Danone an edge when competing with Cadbury Schweppes.[23]

References

  1. Danone Group Information
  2. Groupe Danone 2007 Annual Report: Business, pgs 68-78
  3. Groupe Danone 2007 Annual Report: Business, pg 70
  4. Groupe Danone 2007 Annual Report: Business, pgs 68 and 78
  5. Groupe Danone 2007 Annual Report: Business, pgs 68-78
  6. Groupe Danone 2007 Registration Document: Risk Factors, pg 6
  7. "Danone continues to deliver strong volume and sales growth" July 27, 2010
  8. Danone Annual Report 2009
  9. Groupe Danone 2007 Annual Report: Business, pg 74
  10. Groupe Danone 2007 Annual Report: Business, pg 77
  11. Groupe Danone 2007 Annual Report: Business, pg 68
  12. Groupe Danone 2007 Registration Document: Operating and Financial Review, pg 34
  13. Groupe Danone 2007 Registration Document: Risk Factors, pg 6
  14. Spectrum Commodities: Coffee Seasonal Chart
  15. Consumer Demand for Ways to Fit Quality Meals Into Hectic Schedules Shape Restaurant Trends in 2008, According to National Restaurant Association
  16. Group Danone 2007 Annual Report: Science, pg 32
  17. Group Danone 2007 Annual Report: Business, pg 78
  18. Groupe Danone 2007 Registration Document: Financial Information Concerning the Assets, Financial Position, and Results of the Company, pg 106
  19. Google Finance: Nestle
  20. Google Finance: Unilever NV
  21. Google Finance: Kraft Foods
  22. Google Finance: Cadbury PLC
  23. Consumer Demand for Ways to Fit Quality Meals Into Hectic Schedules Shape Restaurant Trends in 2008, According to National Restaurant Association
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