French food group Danone sticks to goals after weak start to 2021

2/2 © Reuters. FILE PHOTO: Logo of French food group Danone at the company headquarters in Rueil-Malmaison 2/2

By Dominique Vidalon

PARIS (Reuters) -Danone on Tuesday stuck to its goal of returning to profitable growth in the second half of 2021 after posting a 3.3% fall in first quarter sales, as COVID-19 lockdowns continued to dent its bottled water and baby food sales.

The French food group, which is searching for a new chief executive, said it was banking on a gradual reopening of economies from the second half of this year as COVID-19 vaccination programs are rolled out.

Former boss Emmanuel Faber was abruptly ousted as chairman and CEO last month following clashes with some board members over strategy and calls from activist funds for him to resign over the group's lackluster returns compared with some rivals.

Danone did not elaborate on its search for a new CEO but said it would pay "careful attention to ensuring a proper transition". It said previously that it was looking for an external candidate after appointing a duo to manage operations in the interim period.

The company also said it would continue with board-backed changes set in motion by Faber to reorganise Danone around regional hubs rather than brands under a "Local First" plan.

It reiterated its expectations for a return to like-for-like sales growth in the second quarter and for a full-year 2021 operating margin broadly in line with the 14% achieved in 2020.

Danone, the world's largest yoghurt maker, said like-for-like sales fell 3.3% to 5.657 billion euros ($6.82 billion) in the first quarter, compared with expectations for a 3.7% decline in a company-compiled consensus of 19 analysts.

A 1.6% rise in Essential Dairy and Plant-based sales was largely offset by an 11.6% fall in water sales and a 7.7% drop in Specialized Nutrition sales.

Infant Nutrition sales continued to be hit by slowing birth rates and COVID-related disruption in China, notably cross-border sales were down by around 45%.

Under Faber, the company pursued a strategy centered on diversifying into fast-growing products featuring probiotics, protein and plant-based ingredients to mitigate slower growth in dairy.

However, the pandemic complicated prospects for the company, which suffered as sales of products such as Evian bottled water to the restaurant sector dwindled during government-enforced lockdowns.

"We would expect this release to support share price performance until we get some more newsflow on a new CEO before the summer," Citi analysts wrote in a note.

Danone shares were 0.7% lower in early trade at 59.91 euros. They have gained 12% so far this year, supported by speculation around activist shareholder intervention and following a 27% fall last year. The shares have outperformed their European sector, which has lost 7.6% so far this year.

($1 = 0.8293 euros)