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Danone’s Q4 and 2023 Guidance in Line; High-Volume Elasticity Persists in EDP

Shares appear to be fairly valued.

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Securities In This Article
Danone SA
(BN)

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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ioannis Pontikis, CFA

Director of Equity Research in Europe
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Ioannis Pontikis, CFA, is a Director of Equity Research in Europe for Morningstar, where he covers European grocers and global food and beverage companies like Tesco, Unilever, Nestle, and Danone, and manages a team of eight analysts across the Financials and Consumer sectors. He also leads Morningstar’s Equity Research Valuation Committee, advancing the firm's valuation methodology through significant projects such as developing new methodologies, refining our valuation model, and enhancing the efficacy of our ratings.

Before joining Morningstar in 2017, Pontikis spent six years on the buy-side, co-managing a $100M long/short equity fund and leading teams in applying machine learning to stock and equity factor selection models. He developed the fund's valuation and risk assessment framework, achieving strong risk-adjusted performance. Prior to this, Pontikis worked at Nestle S.A. in Athens, focusing on financial reporting, budgeting, and auditing proposals to improve processes.

Pontikis research has appeared in numerous media outlets including Bloomberg, CNBC, Reuters, Guardian, Frankfurter Allgemeine Zeitung among others.

Pontikis holds a bachelor’s degree in business administration from the University of Piraeus’s and a master’s degree in accounting and finance from the London School of Economics. He also holds the Chartered Financial Analyst® designation and studying towards an advanced post-masters degree in portfolio and risk management.

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