Vending

Danone to restructure following 9.3% dip in Q3 sales

October 19, 2020

Danone announced an organizational reshaping after releasing third quarter sales of €5.8 billion ($6.83 billion), down 9.3% from €6.4 billion ($7.56 billion) on a reported basis, primarily driven by change in currencies against the euro which had an effect of a negative 7.1% on the sales of the quarter ending Sept. 30, 2020.

Shares rose more than 2% today following the announcement of a review of its business and a change in management to address COVID-19 disruptions, according to Marketwatch. The company's shares traded at $12.54 today against a 52-week average of $17.52, according to Seeking Alpha,

The company did not release earnings estimates for the quarter.

As part of a restructuring, the company will appoint two macro-regional CEOs, respectively in charge of Danone International and Danone North America, according to the earnings release. Acting as P&L owners, they will be in charge of maximizing the focus on delivery, operational excellence and local execution with cross-category synergies.

In addition, one COO will be in charge of a newly created strategic end-to-end design-to-delivery function, integrating research and innovation, cycles and procurement, operations (manufacturing and supply chain) and quality,

The company will conduct a strategic review of the portfolio of brands, SKUs and assets to shape it for its 3-5% profitable growth agenda, starting with an immediate review of its strategic options for Argentina, for Vega brand, and possibly further assets.

Separately, after 16 years with Danone, Cécile Cabanis has decided to move on and open a new chapter of her professional life. She will leave in February 2021 after the finalization and the launch of Danone's COVID adaptation plan, and after a transition with Juergen Esser, currently CFO of the waters and Africa divisions, as the newly appointed as Danone's CFO

"Our Q3 results reflect how much the COVID-world and its cohort of sanitary measures, border closures, uncertainty in consumer sentiment and some structural changes affect our business," Emmanuel Faber, charmain and CEO, said in the press release. "As we expect continued volatility in our other businesses in the short term, the return of EDP (essential dairy and plant based) growth beyond 3%, both for Q3 and YTD."

On a like-for-like basis, revenues declined by 2.5% during the quarter. Volumes sequentially improved at minus 0.4% in the quarter compared to minus 2.6% in Q2, remaining affected by waters performance, and were flat (minus 0.1%) overall in the first nine months. Value also sequentially improved at minus 2.1% compared to minus 3.0% in Q2, reflecting in Q3 negative country mix but stable pricing.

In out-of-home channels (representing 11% of 2019 sales globally, mostly in waters), sales declined by around 25% in the quarter on a like-for-like basis, slightly improving compared to Q2.

Sales of infant formula done in China through cross border channels contracted sharply (around minus 60%) given the continuous border closure and reduced tourism with mainland China.

Global e-commerce sales accelerated in the quarter 40% at company level compared to 30% in Q2 on a like-for-like basis.

Like-for-like sales growth in Europe and North America improved in the third quarter from minus 3.5% in Q2 to minus 1.1%. North America continued to see solid momentum while sales trends in Europe improved but remained negative, mirroring continued decline in sales normally consumed away from home in waters, and soft category dynamics in specialized nutrition.

Following a Q2 at minus 28% on a like-for-like basis, sales in waters improved in the third quarter but were still heavily impacted by low mobility index due to lockdown policies. Sales declined 13.5% in Q3 2020 on a like-for-like basis, with a decrease in volume of minus 8.1% and minus 5.4% in value.

Revenues in Europe declined at mid-single-digit rate, penalized by hospital and prescription activity rate below pre-COVID levels and soft category dynamics for infant formula.

Looking into the remainder of the year, business remains difficult to predict as the environment is still volatile and much uncertainty remains about the implications of the pandemic as to how exactly lockdown easing, channel dynamics and consumer habits may evolve, notably the pace of recovery of out of home consumption and proxy channels, and the cross-border activity with mainland China. In this environment, Danone remains vigilant and continues to expect the largest factor impacting its Q4 performance will be the channel dynamics driven by the COVID-19 pandemic and resulting global macroeconomic headwinds. Based on current rates, currencies are expected to remain a headwind.