Danone’s Q4 and 2023 Guidance in Line; High-Volume Elasticity Persists in EDP
Shares appear to be fairly valued.
Danone BN reported fiscal 2022 results that included like-for-like sales up 7.8% (volume/mix down 0.8% and pricing up 8.7%, with pro forma volume/mix up 0.2% excluding the Russian essential dairy and plant-based business). The volume/mix decline in the fourth quarter was about 4.3% with pricing up 11.3%, which although better than company-compiled consensus was still lower than that of large packaged food peers in our coverage, most notably wide-moat Nestle. EBIT margin for fiscal 2022 was 12.2%, slightly better than consensus and lower than our own estimates (12.5%). In the fourth quarter, the group’s largest division, the EDP business, was up 14.8% (negative 6.5% volume/mix) while the specialized nutrition and water divisions were up 7.1% and 4.4% respectively (negative 0.3% and negative 5% volume/mix growth respectively).
Danone introduced fiscal 2023 guidance of 3%-5% like-for-like sales growth and a moderate improvement in recurring operating margin (versus our model’s estimates of 2.8% organic growth and a 17-basis-point higher operating margin). In the long term, Danone expects 3%-5% organic sales growth (versus 2.8% in our model) and operating income growth higher than sales growth in the midterm (2023-24), in line with our estimates. We don’t expect to make material changes to our EUR 56 fair value estimate. We expect to dial down our margin forecasts closer to 12%, which we expect to offset higher top-line growth for 2023, resulting in immaterial changes to our fair value estimate. The shares appear fairly valued.
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