Analyst Note| Ioannis Pontikis, CFA |
Danone reported third-quarter sales with like-for-like sales up 9.5% (volume/mix down 1.4% and pricing up 10.9%, pro forma volume/mix down 0.2% excluding EDP Russia). The essential dairy and plant-based segment was up 6.3% on a basis (negative 6% volume/mix) while specialized nutrition and water were up 12.2% and 14.4%, respectively in the quarter, with strong performance across regions. Danone upgraded fiscal 2022 top-line guidance for a second time this year with price-led organic sales growth now expected at 7%-8% versus 5%-6% previously (versus 5.9% in our model) and unchanged guidance on operating margin of above 12% (versus our unchanged 12.4%), assuming 100% reinvestment of cost savings and a low teens to midteens level of input cost inflation based on current macroeconomic assumptions. 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. Given a high teens input cost inflation outlook for peers in fiscal 2022, we expect to dial down our margin forecasts for Danone closer to 12%, which we expect to offset higher top-line growth for the year, resulting in immaterial changes to our FVE. Shares trade in 4-star territory.