Danone Shares Under Pressure After Earnings Miss

Poor Q2 Earnings

Shares in French food giant Danone remain a little soft this week following a subdued Q2 earnings report. The French food group posted earnings per share of 1.55 in Q2. EPS estimates of 1.69 were missed as a result of a 57% drop in sales over the quarter.

Indeed, the drop-in sales were worse than the -3.3% reading the market was looking for. It has been attributed to a massive fall in out-of-home consumption which drove bottled water sales lower by 28%. Danone noted in its earnings report that its profit margin had fallen to just 14% of sales over Q1 2020. This is versus 14.7% over the same period last year.

The drop-off in performance was pegged to the COVID-19 pandemic which saw widespread global lockdowns over Q2.

Chairman and CEO Emmanuel Faber said he felt confident the quarter would be the “most challenging quarter of the year” and said: “the worst is behind us in terms of top-line growth”. Faber is now forecasting a sequential improvement in overall sales growth over the rest of the year.

The company, which leads the market in yogurt, reported a first-half recurring operating income of 1.7 billion euros. This figure reflects an 8.7% decline on the same period last year as a result of an extra 115 million euros to cover the safety of its employees during the pandemic.

Second Wave Fears

Despite CEO Faber’s confidence that the firm is now well into recovery mode, there is still a great deal of uncertainty in the outlook as risks of a second wave continue to increase. Faber noted that the pandemic has created “polarized top-line dynamics” as some consumers began to trade up, reflecting their focus on a healthy diet. Other consumers made the move into more affordable products.

Looking ahead, Faber noted that the company’s strategy will center on diversifying its portfolio, specifically in terms of moving into fast-growing product areas such as probiotics, protein, and plant-based food as a way of offsetting sluggish sales in dairy.

Danone Shares Fall Further

Shares in Danone have tumbled over recent weeks as the post lockdown recovery appears to be fading. Price has now moved through a couple of key support levels and is currently sitting on the 54.26 level.

Below there, the 2020 lows of 50.26 are the next key support level to watch. To the topside, any break back above the 57.06 level will turn focus to the 59.78 level next.

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