Danone expects outbreak to impact Q1 sales

The coronavirus outbreak will have an impact on the world-leading food company Danone's sales and margins in the first quarter, which the company currently estimates at around 100 million euros in lost sales, mostly in its water businesses.

Emmanuel Faber, chairman and CEO of Danone, said the impact will be mostly visible in its water business in China, expecting to see broadly flat first quarter sales growth. The outbreak will also affect the timing of Mizone's repositioning plan initially set for March, putting at risk its summer season and the time to market of Early Life Nutrition innovations in China, he said.

They also include a year-on-year mid-single-digit rise in the cost of its strategic raw materials, although the impact of COVID-19 on commodities prices in 2020 remains uncertain at this stage.

Danone announced 2019 full-year results on Feb 26, with consolidated sales up 2.6 percent to 25.3 billion euros. In the fourth quarter, sales grew 4.1 percent, up from 3 percent in the previous quarter.

For 2020, Danone is targeting mid-single-digit growth, reflecting 2 to 4 percent sales growth, as Danone accelerates investments and factors in assessment to date of the impact of the coronavirus outbreak.

In 2019, its specialized nutrition sector posted net sales growth of 5.8 percent in 2019, while margins reached a record level of 25.3 percent.

In this sector, China posted another exceptional quarter in the fourth quarter, with growth exceeding 20 percent, reflecting notably the outstanding performance of Aptamil brand during Nov 11 - China's and the world's largest online shopping event – and including some benefits from the earlier timing of Chinese New Year.

Water posted net sales growth of 1.5 percent in 2019, with margins of 13 percent. In China, Mizone sales slowed down at a steep double-digit rate in a context of paused investments in the quarter, ahead of the repositioning plan initially set for March 2020 to revitalize the brand.

On the 2020 outlook, Danone assumes that economic conditions in 2020 will remain particularly volatile and uncertain overall, including specific contextual difficulties in a few major markets, with additional pressure on the world economy since the beginning of the year related to the COVID-19 outbreak that began in Wuhan in China last December.